IOOF managing director Chris Kelaher has rejected claims it will abandon a controversial dual trustee and manager structure after pressure from the regulator saying it was a legacy arrangement and IOOF was indifferent to the structure.
The structure is controversial because it introduces conflicts between the interests of the fund and the shareholders of the manager. During the morning session it was heard that despite IOOF Investment Management Limited being aware that 29,000 members could benefit from being moved to a lower fee fund nothing has been done.
“These structures had evolved over time and they were sort of de rigueur ten years ago and maybe they weren’t appropriate any further…we don’t really have any particular barrow to push in that regard” Mr Kelaher said.
“You don’t share the view of APRA that there are legitimate concerns about these structures but ultimately it’s easier to make changes rather than having to deal with the complaints?” Mr Hodge said.
Mr Kelaher agreed with the statement. He said the financial services firm had always had a robust relationship with the regulator.
APRA had been concerned about the inherent conflict of interest that saw IOOF Investment Management charged with the responsibility of acting in the best interests of trustees while also making a profit for shareholders for some years. IOOF’s Mr Kelaher says he is investigating the issue.
Documents were produced showing that IOOF Investment Management had considered that a new pricing model for superannuation members may result in a $8 million loss to revenue if members opted to select the cheaper investment option.
Papers that were signed by at least one board member showed that as many as 29,000 retirement savers would benefit from moving to the new fee structure however nothing was done.
The Hayne royal commission heard earlier that APRA had written to IOOF on multiple occasions expressing concern about the structure for some years.
In a written statement to the commission IOOF’s head of distribution Mark Oliver said APRA did not contact the firm until October 2016.
Mr Hodge asked Mr Kelaher whether the dual structure was discussed at a board meeting held last week on August 1 and asked if notes of the meeting can be produced. Some handwritten notes are then produced and shown, however, it’s unclear who the author of the notes are.
Mr Hodge asks Mr Kelaher whether he takes notes at board meetings to which he responds “nothing of any interest” and “I scribble”.
“Do you regard it as common practice in this day and age for the minutes of a publicly listed company to be taken by a company secretary in hand writing?” Mr Hodge asks.
Mr Kelaher replied that is the way the firm has always recorded board meetings. Earlier this week Mr Kelaher said it would be a mistake to make too many changes to Australian superannuation’s “very good system”
The exchange follows the morning session where was heard that IOOF asked investment managers to sign a new agreement five days before the Future of Financial Advice reforms (FOFA) banned payments to platform companies for shelf space.
The new investment deed signed by the managers would allow it to collect payments from fund managers for what it loosely described as services.
The payments would be a minimum of $1250 per quarter per fund with some managers having multiple funds. The effect of the payment was that it would allow IOOF to continue collect millions of dollars on fees from fund managers that were otherwise banned under the new regulations.
Shelf space under another name
IOOF’s head of distribution Mark Oliver said the fees were for access, administration, distribution payments and tax reporting. For the year ending 2017 IOOF received $182,000 from Aberdeen, $80,000 from Ausbil and $113,000 from Challenger.
Counsel assisting Michael Hodge QC put to IOOF’s head of distribution Mark Oliver that the fee collected by IOOF was nothing more than a shelf space under another name.
“If the payment that is being made is a percentage of the funds invested, unlinked from the value of the services provided, then it is entirely possible that the payment made by the external manage med investment scheme will vastly exceed the value of any services provided?” Mr Hodge asked
“If the proposition is that the amount exceeded the reasonable level of services provided I would agree” Mr Oliver said.
The changes were introduced from July 1, 2013 with the intention of prohibiting payments from fund managers to platform operators except insofar as they related to services performed by the platform operator. The issue has been raised during the financial advice hearings in May where AMP admitted it had similar arrangements in place.