MySuper given passive aggressive treatment

The requirement for all super funds to offer a MySuper option, legislated in 2013 with a final start date of mid-2017, created instant conflicts of interest as funds realised their advisers would lose trailing commissions.

Commissioner Kenneth Hayne, in his final report, noted that super fund trustees and managers were either unwilling to put members interests first by rolling them into the lower cost funds sooner, or were incapable of seeing a problem.

Part of the retelling of the extensive case studies by commissioner Hayne focused on showing how vertically integrated businesses had evolved almost inevitably into situations where conflicts of interest were the rule rather than the exception.

The themes of scrambling for fees and trailing commissions emerged across many large financial services providers, notably bank-run super fund operations.

For instance, the conduct of two businesses within CBA wealth management business Colonial First State (CFSIL) and Avanteos, disclosed shortcoming in four areas:

•    the transition of accrued default account balances and default contributions to a MySuper product;
•    the charging of fees for no service, or after a member died;
•    the sale of superannuation in CBA branches, generally through a device of a financial health check, closely followed by a suggestion to take up a super fund option, which raised questions over provisions of financial advice; and
•    the performance of members' cash investments and related party arrangements - notably that trailing commissions were charged for cash investments.

The super fund service of regional bank, Suncorp Portfolio Services Limited, which was the trustee of two superannuation funds, started transferring ADAs (generally members who had not chosen a super fund) to its MySuper default option on 9 June 2017, and finished on 19 June 2017 - 13 days before the five-year time limit expired.

Cutting through the corporate waffle, Hayne determined that in effect the managers wanted to maintain commissions to advisers for as long as possible. Once default superannuation accounts were transferred into new MySuper products, commissions to advisers would cease.

"I do not make any findings about this conduct. I only observe that, on its face, it is difficult to understand how amending the agreement to allow for grandfathered commissions to be maintained was in members' best interests," he wrote.

He added that APRA needs to do more in its evaluation of how trustees of vertically integrated institutions are complying with their fundamental duties to their beneficiaries.

And to do this, the quality of APRA's evaluation of conflicts management within retail groups must improve, not merely add more regulatory boxes to be ticked, he said.