Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry VOLUME 2: CASE STUDIES © Commonwealth of Australia 2019 ISBN:© Commonwealth of Australia 2019 ISBN: 978-1-920838-64-5 (print) 978-1-920838-64-5 (print) 978-1-920838-65-2 (online) 978-1-920838-65-2 (online) With the exception of the Coat of Arms and where otherwise stated, all materialWith the exceptionpresented of in the this Coat publication of Arms and is provided where otherwise under a stated,Creative Commonsall material presentedAttribution in 4.0 this International publication is licence provided under a Creative Commons Attribution 4.0 International licence (www.creativecommons.org/licenses). For the avoidanceavoidance of of doubt, doubt, this this means means this this licence licence only only applies applies to material asto materialset out inas thisset outdocument. in this document. 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Contents Volume 2: Case Studies Glossary xvii Abbreviations xxi Legislation xxv The Commission’s tasks 1 Case studies: Superannuation 5 Introduction 5 1 NULIS Nominees (Australia) Ltd 10 1.1 Background 10 1.2 Evidence 11 1.2.1 Fees for no service 11 Plan service fees 12 ASIC proceedings 13 Internal investigations 15 Communications with ASIC in relation to Report 499 18 Adviser Service Fees 28 Four identified events 29 NAB’s negotiations with ASIC in relation to ASFs 31 Breach reporting 37 1.2.2 Grandfathering of commissions 39 1.2.3 MySuper 43 1.3 What the case study showed 47 1.3.1 Conduct in respect of PSFs 47 1.3.2 Misconduct in respect of fees for no service 50 1.3.3 Misconduct in relation to reporting of breaches 56 1.3.4 Misconduct in relation to grandfathered commissions 57 1.3.5 Misconduct in relation to MySuper and transition of accrued default amounts 59 1.3.6 Conclusion 60 v Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry 2 CBA superannuation funds 62 2.1 Background 62 2.2 Evidence 63 2.2.1 Conduct in respect of MySuper 63 2.2.2 Fees for no service conduct 71 2.2.3 Commissions, contribution fees and grandfathering 74 2.2.4 Selling of superannuation through CBA branches 79 2.2.5 Returns to members on cash investments 83 2.2.6 Related party arrangements 84 2.2.7 Intra-fund advice and a banned adviser 87 2.3 What the case study showed 89 2.3.1 The MySuper transition 89 2.3.2 Fees for no service 92 2.3.3 Grandfathering commissions 92 2.3.4 Misconduct in respect of distribution through CBA branches 94 2.3.5 Cash investments 99 2.3.6 Related parties 100 2.3.7 Intra-fund advice 101 2.3.8 Conclusion 101 3 AMP 103 3.1 Background 103 3.2 Evidence 103 3.2.1 AMP superannuation funds 103 3.2.2 Outsourcing arrangements 104 3.2.3 Products offered and fees charged to members 108 3.2.4 Fees under outsourcing arrangements 109 3.2.5 Consequences of outsourcing arrangements 112 3.2.6 Monitoring of outsourcing arrangements 112 Trustee Services 112 Operation of the Business Monitoring Model 113 Exceptions criteria for underperformance 115 3.2.7 Performance of cash investments 116 Evidence 116 What this part of the case study showed 121 3.2.8 Performance of MySuper products 124 Evidence 124 What this part of the case study showed 127 vi Final Report 3.2.9 Distribution of trustees’ products 130 Evidence 130 What this part of the case study showed 133 3.2.10 Performance of investments and indirect costs 136 Evidence 136 What this part of the case study showed 138 3.2.11 Transition to MySuper 141 Evidence 141 What this part of the case study showed 145 3.2.12 Pricing decisions 147 Evidence 147 What this part of the case study showed 149 3.2.13 Termination of arrangements 150 3.3 What the case study showed 151 3.3.1 Key problem 151 3.3.2 Overarching conclusions about the trustees’ outsourcing arrangements 152 Section 52(2)(c) 153 Section 52(2)(d) 154 Section 52(2)(h) 156 Conclusion 159 4 IOOF 161 4.1 Background 161 4.2 The APRA proceedings 163 4.3 The 2016 letter 166 4.3.1 Background 166 4.3.2 The letter to members 168 4.4 Changing the pricing for the IPS Fund 169 4.5 ANZ transaction 173 4.6 What the case study showed 177 4.6.1 Did Questor mislead TPS members in breach of section 12DA of the ASIC Act? 177 4.6.2 Pricing changes 178 4.6.3 ANZ transaction 180 vii Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry 5 ANZ branch selling program 180 5.1 Background 180 5.2 Evidence 181 5.2.1 The Services Deed 184 5.2.2 ANZ’s consideration of risks 184 5.2.3 ASIC investigation 186 5.3 What the case study showed 187 5.3.1 Distribution process 187 5.3.2 Misconduct 188 Effective controls? 188 ASIC’s guidance 189 Breaches 190 6 Suncorp Portfolio Services Limited 191 6.1 Background 191 6.2 Evidence 192 6.2.1 Payments to Suncorp Life 192 6.2.2 MySuper transition and ADA transfers 195 6.2.3 FoFA and grandfathering of commissions 197 6.3 What the case study showed 197 6.3.1 Use of the tax surplus 197 6.3.2 Misconduct in respect of MySuper and ADA transfers 201 6.3.3 Grandfathered commissions 203 7 QSuper 203 7.1 Background 203 7.2 Evidence 204 7.3 What the case study showed 209 viii Final Report 8 Hostplus 209 8.1 Background 209 8.2 Evidence 212 8.2.1 Marketing and corporate hospitality 212 8.2.2 Retention strategies 214 8.3 What the case study showed 215 8.3.1 Keeping low balance members in the fund 215 8.3.2 Conduct falling below community standards and expectations in relation to retention strategies 216 8.3.3 Consideration of section 68A 217 9 Board governance 220 9.1 Background 220 9.2 Evidence 221 9.2.1 Director tenure – AustralianSuper 221 9.2.2 Number of directors – Cbus 222 9.2.3 Appointment and dismissal of directors – Sunsuper 223 9.3 What the case studies showed 226 10 Mergers 227 10.1 Background 227 10.2 Evidence 228 10.2.1 Energy Super 228 10.2.2 CSF Pty Ltd 233 10.3 What the case study showed 236 11 Trustee money management 236 11.1 Background 236 11.2 Evidence 238 11.2.1 AustralianSuper 238 Investments 238 Spending 241 11.2.2 Cbus 244 11.2.3 CSF 245 Use of corporate credit cards 247 ix Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry 11.3 What the case studies showed 248 11.3.1 AustralianSuper 248 11.3.2 Cbus 249 11.3.3 CSF 250 12 Payments from third party managed investment schemes 251 12.1 Background 251 12.2 Evidence 252 12.2.1 IOOF Investment Management 252 12.2.2 OPC and Oasis 253 12.3 What the case study showed 255 13 Fees for no service 257 13.1 Background 257 13.2 Evidence 258 13.2.1 StatePlus 258 13.2.2 OPC 259 13.2.3 Westpac 260 13.3 What the case study showed 261 14 MySuper and other retail groups 262 14.1 Background 262 14.2 Evidence 263 14.2.1 Aon Hewitt 263 14.2.2 Mercer Superannuation 265 14.3 What the case study showed 268 14.3.1 Aon Hewitt 268 14.3.2 Mercer Superannuation 269 x Final Report 15 Regulatory responses 269 15.1 ASIC 269 15.1.1 Approach to regulation 269 15.1.2 Fees for no service 271 15.1.3 Grandfathered commissions 272 15.1.4 Transfer of ADAs 273 15.1.5 Branch selling program 273 15.2 APRA 276 15.2.1 Approach to regulation 277 15.2.2 Supervision and enforcement 278 15.2.3 Fees for no service 280 15.2.4 CFS and the transition of members to MySuper products by retail fund trustees 281 15.2.5 IOOF 283 Case studies: Insurance 289 Introduction 289 1 ClearView 290 1.1 Background 290 1.2 Evidence 290 1.2.1 Accidental death policies 291 1.2.2 ASIC engagement – anti-hawking 292 1.2.3 ASIC engagement – pressure selling 294 1.2.4 Resolution and closure of the Direct business 297 1.3 What the case study showed 298 2 Freedom 302 2.1 Background 302 2.2 Evidence 303 2.2.1 Mr Stewart’s son 303 2.2.2 Selling to vulnerable consumers 306 2.2.3 Accidental death and accidental injury policies 307 2.2.4 Remuneration and incentives 309 2.2.5 Quality assurance and disciplinary processes 310 2.2.6 Retention strategies 311 xi Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry 2.3 What the case study showed 312 2.3.1 Misconduct 312 2.3.2 Conduct falling below community standards and expectations 315 2.3.3 Causes of the conduct 317 3 CommInsure 317 3.1 Background 317 3.2 Evidence 318 3.2.1 First insured – heart attack 318 3.2.2 Second insured – breast cancer 322 3.2.3 The decision not to update the ‘heart attack’ definition 324 3.2.4 The decision not to backdate the updated ‘heart attack’ definition to 2012 326 3.2.5 ASIC’s investigation and misleading advertising 327 3.3 What the case study showed 328 3.3.1 ‘Heart attack’ definition and advertising 328 3.3.2 Individual cases 329 3.3.3 Effectiveness of mechanisms for redress 331 4 TAL 331 4.1 Background 331 4.2 Evidence 332 4.2.1 The first insured 332 4.2.2 The second insured 338 4.2.3 The third insured 342 4.2.4 The audit of declined mental health claims 343 4.3 What the case