Peter Chun (left) and Linda Elkins

Alleged conflicted remuneration breaches brought against Colonial First State and the Commonwealth Bank have been dismissed by the Federal Court.

The court found CFS did not breach the law when it agreed to pay the Commonwealth Bank to distribute its MySuper product Essential Super.

The arrangement became a subject of a case study by the Hayne Royal Commission and was referred in ASIC’s final report on the commission.

The court found the payments did not constitute “conflicted remuneration” because the statutory context focuses on situations where a financial adviser has a financial incentive.

ASIC launched proceedings in June 2020, alleging more than $22 million in conflicted remuneration was paid by CFS Investments Limited to CBA for distributing Essential Super.

Approximately 390,000 individuals became members of the Commonwealth Essential Super fund under the arrangements which was done in person and over digital channels between July 2013 and June 2019.

On the hot seat

The Commission heard evidence from then CFS executive general manager Linda Elkins and then CFS general manager of distribution Peter Chun.

In 2012, CFS and CBA started developing a product that would become Essential Super which CBA would sell in its branches which would be a simple, low-cost product.

Its target market would be CBA customers who came through the bank’s branches and the staff would attempt to create consumer interest upon making a financial transaction or taking a financial health check.

Chun told the Commission the proposed distribution model was shown to ASIC in 2012 and early 2013 because he recognised there was “potential risks around the general advice distribution model… potentially blurring into personal [advice]” and because the distribution model was a major undertaking of CBA.

“The person in the branch is not attempting to make any assessment of whether [Essential Super is] appropriate for the member,” Chun told the commission. “We were not recommending other products to the customer. We were making them aware of this particular superannuation offering.”

Both Chun and Elkins have since moved from their respective positions at CBA and CFS with Chun now CEO of UniSuper and Elkins a partner at KPMG Australia.

Vertical integration rearing its ugly head