Staff at wealth manager IOOF raided a reserve fund to fix their own bungle then lied to both customers and the regulator about what had transpired, the Hayne royal commission heard on Friday.
The fifth day of hearings into superannuation continued the week-long exposure of the shadowy world of super trustees, who are obliged to act in the best interests of fund members but have repeatedly been shown to be compromised by commercial allegiances.
IOOF’s raid of the members’ reserve funds was just one of several that have occurred under the watch of veteran managing director Chris Kelaher, who has been in the job since 2009.
When asked whether the issue of dipping into the reserve to repay members had arisen at other times Mr Kelaher said: “You will have to be more specific”.
The commission was presented with multiple documents that discussed the issue at the executive and board level, including one document where it was felt the explanation given to members for raiding its reserves had passed the “pub test”.
Among those documents shown to the public and tendered as evidence from the $3 billion financial services player were hand-written notes from a board meeting held on August 1, 2018. Counsel assisting Michael Hodge, QC, asked if that was adequate for a company of IOOF’s size.
“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 hand writing them?” Mr Hodge asked. IOOF shares fell 2.7 per cent to $8.73, equalling their lowest point since April 2017.
It follows four days of damaging revelations from NAB that compelled CEO Andrew Thorburn to apologise to customers after it was revealed to have taken money from members for services it didn’t provide.
NAB’s aims to sell the wealth management business and achieve a good price are also under pressure as the underlying owners of the $76.3 billion in superannuation investments managed by the bank question whether they can trust it to do the right thing.
A spokesperson for Carlton United Breweries said it was concerned about the revelations and would require a response. “We are seeking answers from NAB to ensure our employees’ superannuation contributions have been managed responsibly.”
During the hearing it was revealed that APRA had been pushing for IOOF to unwind the dual structure that saw IOOF Investment Management Limited act as both the trustee for super fund members and the responsible entity for the managed investment.
Statements from IOOF said the regulator had not expressed any concern about the structure until October 2016.
However, documents revealed this had occurred much earlier with a letter from APRA dated September 2015 expressing “difficulty in obtaining accurate information” from IOOF.
Mr Kelaher said the subject came up at the August 1 board meeting and that he was largely indifferent to the structure. He was dismissive of the potential for conflicts and implied the issue of using members’ reserve funds for was minor.
At one point, documents were produced that suggested IOOF subsidiary Questor which was partly responsible for the bungled payout from the cash management trust and subsequent clawback, was considering suing itself for damages.
“I want to put these things to your squarely Mr Kelaher, at no time has Questor properly displayed any understanding of its best interest duty to its members in relation to the Questor CMT issue?” Mr Hodge said.
“At no time has Questor ever displayed any proper understanding of its obligations to put the interest of members always and over the interest of Questor and any related entity to Questor.”
“Even now, you do not see any problems with the events that have occurred in relation to this?”
“I see a problem in so far as there was an over distribution. At the end of the day that over distribution was compensated for in full,” Mr Kelaher responded.
“No it wasn’t compensated in full. You used the members reserve to purportedly compensate them. You know that don’t you?” Mr Hodge said.
“No, they are your words,” Mr Kelaher said.
“Have you ever looked at the statements for Questor?” Mr Hodge asked
“Yes,” said Mr Kelaher.
“Have you ever looked at the financial statements for the super fund” Mr Hodge asked.
“Not recently,” Mr Kelaher said.
“Have you ever looked to see if the reserve is an asset of the fund?” Mr Hodge said.
“Not specifically,” Mr Kelaher said.
“If the reserve is an asset of the fund, do you accept that it belongs to members?” Mr Hodge asked
“No its not an asset of the fund and I don’t,” Mr Kelaher said.
“I don’t have any further questions of Mr Kelaher,” Mr Hodge said.
Earlier on Friday IOOF’s Mark Oliver further underscored the problems of conflicted super trustees when it was found that 28,000 super fund members would benefit from being moved to a new, lower fee structure but were not after it was identified to be worth $8 million in annual revenue.