Commission mulls commissions, advice fees bans in super overhaul
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Commission mulls commissions, advice fees bans in super overhaul

The royal commission will consider a suite of radical changes to the superannuation system including banning some commissions and fees while warning the banks may need to sell their trustee businesses if they can’t manage conflicts between shareholders and members.

The proposed expansion of the best interest test, to cover all bank units that interact with the trustee, is expected to send shockwaves through the banks. There is expected to be widespread support for a ban on grandfathered commissions.

The mooted policy changes were outlined in a 223-page closing submission by the counsels assisting the royal commission led by senior counsel Michael Hodge, QC, to the commission following two weeks of hearings into the $2.6 trillion superannuation sector.

The submission, released late on Friday, also recommended National Australia Bank and the Commonwealth Bank face criminal chjarges over their respective alleged breaches of their duties to super fund members, which for CBA included 13,000 breaches.

Despite not being subject to an official case study during the two weeks of hearings, Westpac’s BT superannuation arm, Stateplus, Aon Hewitt Financial Advice were all alleged in the submission as having breached the Corporations Act over their handling of member’s interests.

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US giant Mercer's Australian arm was accused of conduct falling below community standards over an internal email that recommended the fund not tell members in one of its pension products about lower fees on offer.

Those funds join AMP, IOOF, NAB, CBA, ANZ and Suncorp which were all alleged to have breached the Corporations Act or the Superannuation Industry Supervision Act.

Mr Hodge floated changing best interest laws so that they cover not just the trustee subsidiary within a large bank but other bank units that do business on behalf of or work with the trustee inside the bank.

Senior counsel assisting Michael Hodge QC has made some radical policy suggestions to overhaul the superannuation sector.

Senior counsel assisting Michael Hodge QC has made some radical policy suggestions to overhaul the superannuation sector.

Photo: AAP

During the royal commission hearings, the trustees of superannuation funds were revealed to be nearly wholly dependent on services by other departments within the banks. This meant that negative information about breaches, misconduct or poor performance was often kept from trustees. Those trustees, according to the submission, were often unquestioning of the information provided by the bank’s other entities.

Mr Hodge said, “If a particular group considered that acting in the interests of the members of the superannuation fund would present difficulties for the operations of other parts of its group then that might suggest that it would be better if the group divested itself of the trustee rather than hampering the ability of the trustee to comply with its obligations.”

It would be better if the group divested itself of the trustee rather than hampering the trustee's ability to comply with its obligations

Round 5 closing submission to banking royal commission by senior counsel assisting the commission, Michael Hodge, QC

Mr Hodge said conflicts could also arise in industry funds given they also have shareholders that may have needs that conflict with the rights of members.

The industry funds called to give evidence were found to have had far fewer instances of misconduct (or zero instances of misconduct in the case of AustralianSuper) compared to retail funds operated by the big banks.

Mr Hodge described the legislative changes as a potentially “desirable” way to improve member outcomes after the hearings showed that funds’ choice to protect payments to financial advisers show funds were “prepared to compromise the interests of the member in favour of the financial interests of the adviser”.

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“The difficulties that retail trustees have experienced in prioritising the interests of their members over the interests of financial advisers raises the question of whether legislative intervention is required to address this issue,” Mr Hodge said.

A spokeswoman for NAB said the bank disagreed with the proposed findings and would address them when it responds to the closing submission by August 31.

“We take our obligations to uphold the law seriously. Where we get it wrong, we expect to be held accountable.

“We are also focused on earning the trust and respect of or customers every day, and when we do not live up to their expectations we will make it right.”

It is believed that NAB will also argue strongly against suggestions it had a disregard for the Australian Securities and Investments Commission.

A spokesman for CBA said the bank would consider the closing submission seriously.

“We will provide a full, written response before the deadline, however until the Royal Commission has reviewed and published our response, it’s not appropriate for us to make any public comments.”