Colonial First State, the superannuation arm of the Commonwealth Bank, is still taking fees from the super accounts of dead people who signed contracts prior to the Future of Financial Advice reforms of 2013, the royal commission has heard.
Colonial First State general manager Linda Elkins said the bank was entitled to charge the fees on old accounts but was reviewing the practice.
“It would be in the overall review that I’ve spoken about,” she told the banking inquiry on Wednesday.
From 2016, the bank considered putting a rider in product disclosure statements telling investors that fees could be charged on the accounts of dead people. Ms Elkins said the internal view from 2018 was “we probably should cease” – and should never have charged the fees at all.
CBA charged a 30 per cent fee on the revenue of its superannuation trustee following the introduction of a new super fund in 2018. The new fund was aimed at default MySuper customers, who tended to be disengaged and often have small balances.
Colonial executive Peter Chun defended the move, saying it was not designed to be a low-cost fund.
“It was modelled on top-quartile funds,” Mr Chun said, referring to those that have fees in the top quarter of those charged in similar funds.
The commission also heard that, in mid 2017, current CEO Matt Comyn tried to persuade regulator ASIC to not demand that CBA give an “enforceable undertaking” for misconduct. Mr Comyn instead offered for the bank to issue a media release detailing its breaches.
An enforceable undertaking (or EU) is a binding agreement made with ASIC that can be enforced in court.
An internal document described an action plan that involved Mr Comyn ringing ASIC deputy chair Peter Kell to talk him into accepting a media release rather than an EU. If that failed, the plan was to “write to ASIC … accepting the EU in principal but seeking to discuss specific terms of the undertaking”.
Ms Elkins told the commission that CBA was not trying to change ASIC’s mind and was seeking details on what the regulator considered were “the definitions of general advice versus personal advice”.
ASIC refused CBA’s arguments and put the EU in place. The breach involved CBA giving what regulators considered “personal advice” to customers in bank branches when selling superannuation products – the bank considered it general advice.
That distinction raised a response from Commissioner Kenneth Hayne, who expressed scepticism that selling super in a bank could be called “general advice”.
How could a super product be sold in branches “without those members of staff giving any personal advice?”, Commissioner Hayne said.
It is far from apparent to me how that could possibly occur.”
CBA also released details of the returns it paid on superannuation money invested in cash options following negative media coverage in June this year. At the time, CBA was charging administration fees on cash and market-based investments of 0.7 per cent and 0.36 per cent, with most options between 0.4 per cent and 0.48 per cent.
That stood starkly against the roughly 0.2 per cent benchmark set by research house Chant West. At the time, CBA proposed new, lower, fees but these were still predominantly between 0.35 per cent and 0.5 per cent, with some options actually increasing.
Counsel assisting Michael Hodge put it to CBA’s Ms Elkins that under-performance on cash returns was due to fees.
“From the perspective of Colonial the only explanation for the lower performance … [was] that there’s a trailing commission.”
“Yes,” Ms Elkins replied.
Detail on insurance costs found that, in most cases, Colonial super products had higher fees than the industry average.
“When Comminsure [CBA’s insurer] is above the median, it is well above the median. But when it is below the median, it is only a little below,” Mr Hodge said.