Colonial First State will pay a $100 million in-principle settlement in relation to the grandfathered commissions class action brought by plaintiff law firm Slater & Gordon.
The matter relates to CFS’ payment of commissions to advisers and the fees charged to Colonial First State FirstChoice Superannuation Trust members from 1 July 2013 to 1 June 2020 which was identified during the Hayne Royal Commission in 2018. That evidence led to the class action firm pursuing litigation.
A spokesperson for CFS, which is owned by private equity giant KKR with a minority stake held by the Commonwealth Bank, declined to comment beyond a statement on the company’s website.
“Following a confidential court-ordered mediation on 16 June 2023, CFSIL and the applicants have agreed to settle the class action. The settlement is subject to court approval,” the statement said.
“In agreeing to resolve the litigation, [CFS] continues to deny the allegations and makes no admissions of liability or wrongdoing.”
It is understood a communication regarding the settlement was sent to CFS staff and external financial advisers on Friday morning. Industry sources said the wealth giant was positioning the matter as the end of the post-Hayne chapter for the company, which has ambitions to grow its wealth platform and retail super products.
If the court green-lights the settlement, eligible group members will each recover a share of the agreed settlement sum minus legal fees and court-approved deductions.
‘I never sought, nor received, any financial advice’
Slater & Gordon issued a statement on Friday noting the outcome is the highest achieved by the firm in a group proceeding.
The outcome was welcomed by lead applicant Marcel Krieger, who joined FirstChoice Personal Super in 2010 during a branch visit to the Commonwealth Bank.
After stepping into the branch, he noted the adviser mentioned the commission would be received for signing up.
“I didn’t realise I would be paying ongoing higher fees to fund ongoing commission payments,” he said.
“After that initial meeting, I never sought, nor received, any financial advice in relation to my super.”
He added that prior to the class action he didn’t know that from mid-2013 he was paying higher fees than members who joined the same product after that time.
“I would not have stayed in the higher fee product if I had been told that almost identical but lower fee options were available,” Krieger said.
Slater & Gordon class actions practice group leader Kirsten Morrison said many Australians would be eligible for a share of the settlement, which would be returned to their superannuation accounts.
“This is a great outcome for the many thousands of customers who put their faith in Colonial to look after their financial interests but were disadvantaged by the arrangements in place with financial advisers that were not in customers’ best interests,” Morrison said.
Second lead applicant Jason Burton said he joined FirstChoice Employer Super through his employer in 2005.
However, after an initial information session with CFS organised through his employer, Burton said he never received ongoing financial advice.
“I was not made aware that I had the option to switch my super to an equivalent super product with lower fees that did not pay ongoing commission to a financial adviser,” Burton said.
“These fees continued on my super account until I was automatically transferred in late 2016 under MySuper.”
Suite of suits
The grandfathered commissions suit is one of five brought by Slater & Gordon as part of its so-called “Get Your Super Back” campaign, taking advantage of evidence uncovered and heard by the royal commission, including two brought against CFS.
Last year, CFS settled a suit brought against it and former executive director Linda Elkins by rival plaintiff firm Maurice Blackburn relating to the alleged failure to transition $3.2 billion worth of accrued default accounts in a timely manner.
Slater & Gordon is also pursuing Commonwealth Bank and CFS in a separate group proceeding for investing super fund members in the parent bank despite the bank not offering the best interest rates.
In 2019, CFS was among the first financial institutions to switch off grandfathered commissions paid to advisers, moving pre-emptively ahead of federal legislation.
Morrison said it was likely that some members of the class who had financial advisers linked to their accounts would have to register to participate in the settlement and confirm that they did not receive ongoing financial advice under the commission arrangements, but no further action is needed at this point.
She added it will take months for the Federal Court to sort out the settlement process.
“Settlement funds will not be distributed until the settlement has been approved by the Federal Court, and that process will take some months,” she said.