It has long been suspected that superannuation funds run for profit sometimes charge excessive fees and try to keep members in high-fee accounts when it is against their best interests. But not many companies put it in writing.
The ABC’s Four Corners program has obtained documentary evidence of a superannuation business doing just that.
“We want to protect our existing … revenue as much as possible,” Mercer, a US-owned multinational that is a big player in superannuation, wrote to senior staff.
“Accordingly we do not intend to advertise the new lower fees to existing members and we don’t want to make it easy for them to [a] find out about the new lower fees and [b] access them.”
Former Mercer employee Ashley Tobin, who worked for the company for 13 years, said it was “an unusually frank admission of Mercer’s priorities”.
“Mercer is there to make money. Members’ interests came a long way second, a long way second,” he said.
The instruction to hide the lower fees available was issued while Mercer was making changes to its Allocated Pension Division.
In the face of increased competition, and legislative reforms designed to cut costs for superannuation fund members, Mercer introduced lower fees for new members joining this division in early 2014.
It closed the existing scheme but decided wherever possible to keep existing members in the “old category” on a plan that charged significantly higher fees.
Mercer acknowledged in an email to senior staff that its decision to hide the new lower fees from existing members raised “some delicate trustee fiduciary issues”.
Members who had “a Mercer adviser who is acting in the member’s best interests” would probably swap to the new lower fee arrangement – in effect, conceding that the best interests of members stuck on the old fee arrangement were being undermined.
But Mercer said: “It is much less costly for the business than advising all of the existing members and having most of them apply to have their fees reduced.”
Trustees of superannuation funds have an overarching duty to members of the fund and, where there is a conflict of interest, should always put the members’ best interests first.
When shown the Mercer document by Four Corners, prominent investment banker Mark Carnegie said: “I’m outraged.”
“Day one of trust law, you shouldn’t let your duty and your interests conflict.
“You’ve never seen a better example of somebody saying, ‘Let your duty and your interests conflict. Do what’s in your interests not in the interests of your client’. How can I not feel outraged that somebody in my industry is doing something as appalling as that?”
Mercer ‘not happy’ after complaint raised by employee on client’s behalf
In 2016, one member of the allocated pension division who was stuck on the old fee arrangement happened upon a product disclosure statement on the Mercer website that set out the new fees.
He made numerous calls to Mercer’s member helpline trying to get redress, before speaking to an employee by the name of Tracey Glanville.
She agreed it looked as if he was paying too much and helped raise a formal complaint on his behalf.
Management was “not happy”, Ms Glanville told Four Corners.
“This took a long time to resolve, plus it cost a lot of money to fix. We are supposed to minimise costs to the company,” Ms Glanville said.
“I was told I was not allowed to spend that much time on the phone assisting people, just to really let it slide in the future. I didn’t like it one bit.”
Ms Glanville did not receive her annual bonus that year: in part, for spending too long on calls assisting people.
The member who complained was eventually refunded $14,000 “as a gesture of goodwill”; he had been slugged an additional $7000 a year in fees.
But he was told the trustee was under no legal obligation “to communicate the new fee structure” to current members such as him.
Ms Glanville was unaware that helping the member lower his fees was contrary to a deliberate management strategy.
“[It] makes me very angry,” she said, when told of the management directive to protect revenues by making it difficult for existing members to find out about, or access, the lower fees available.
“At least I now understand why I’ve gotten into so much trouble over it all, but why wouldn’t we help them? They are entitled to lower fees.”
Mercer declined to be interviewed or to answer a series of specific questions put to it.
But it said it had “no outstanding complaints” from current or former customers or employees and took its “fiduciary and legal responsibilities seriously”.
“Mercer often creates new products to suit emerging demographic and life stages of our customers,” it wrote in prepared statement.
“These new products are not all directly comparable and may have different features or benefits to those issued previously.”
Mr Tobin, who worked alongside Ms Glanville, retired last year, two years earlier than he had originally planned.
He said the episode had brought into sharp focus the conflict between the interests of members and the company’s desire to protect revenues and maximise profits.
“It troubled me intensely,” he said.
“I’d live with this conflict of interest, I knew it existed, I’d spoken to many a colleague about it. We’re all just letting it go, letting the ball go through to the keeper.
“Then to see a colleague, someone trying their hardest, someone new, trying to look after this member, the member’s interests, doing what you would want your best consultants, administrators to do, look after the member, getting into trouble because of that.
“That was almost the last straw for me.”