Sarah Court

A former Commonwealth Bank subsidiary has received the first criminal conviction for defective disclosures after it charged superannuation fees for advice to members after death.

Colonial First State Custom Solutions, now known as Avanteos Investments, was penalised $1.7 million by the County Court of Victoria.

There were 499 deceased members with funds in Avanteos superannuation products charged almost $700,000 in fees by Avanteos who have since been remediated.

In a media statement released Wednesday afternoon, ASIC deputy chair Sarah Court said the trustee was aware it did not have authority to deduct fees from members after their death and failed to make changes to its disclosure documents.

“This is the first criminal prosecution for failing to update defective disclosure statements, and it should be seen as a warning to the industry to act on advice and rectify problems quickly or face possible criminal action.”

Paper trail of negligence

The court found until May 2018 Avanteos deducted advice fees which was paid to a member’s financial adviser until the provider was notified the member had died, or otherwise received instruction to cease payment.

Internal correspondence shared during the case showed emails from 6 January 2016 which found two Avanteos managers acknowledged the process of paying advisor fees after the death of a member.

The email chain concluded by asking if legal advice should be sought. In a response to the email, Avanteos’ general manager stated “I don’t like the idea of turning off the fees”, although it was implied that advisers are involved in estate activities following the death of the member.

On 29 February 2016 a letter of advice was received from law Lander & Rogers which noted the defect in the disclosure documents and lack of reference to the continuation of adviser fees after the investor’s death, assuming that it was an “unintentional omission”.

Despite management’s knowledge of the defect at the start of 2016 which was confirmed by the legal advice, the court found nothing was done for the following 28 months. Instead, various emails shown to the court found management discussing whether to continue charging fees rather than following through on their legal obligation not to.

One down, seven to go

The conduct was a subject of the royal commission and there are now seven cases from the commission before the courts.

If not for the early guilty plea last December to the 18 criminal charges, Judge Wraight said the penalty would have been $2.7 million.