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
The dismissal of the case comes as concerns over Quality of Advice Review lead Michelle Levy’s proposals could potentially open the door for the major institutions like superannuation funds and the banks to re-enter advice, particularly with vertical integration being left out of the terms of reference.
However, Levy dismissed these concerns in a webinar hosted by Professional Planner after her proposals were released.
Speaking on another webinar hosted by sister publication Investment Magazine on Wednesday afternoon, Levy discussed in depth how the changes will present a greater opportunity for super funds to confidently give advice.
“The proposals make clear to funds that they can advise on all aspects of what they offer to their members,” Levy said. “While there is more clarity, there is also more responsibility.”
Conexus Institute executive director David Bell said there is a valid concern the proposed changes will set up scaled limited advice to be the solution to Australia’s advice need.
“The concern is this will likely come with little product advice and the question mark is whether this could result in poor consumer outcomes in some sectors,” Bell said.
The advice review is a recommendation from the final report of the commission, but Levy was appointed was done in the waning months of former financial services minster Jane Hume’s tenure.
Earlier this year before Labor won the election in May, then opposition financial services minister Stephen Jones ruled out any regulatory change that would allow super funds to indulge in a vertically integrated business model.
