IOOF left some superannuation members in expensive legacy products despite board members recognising conflicts of interest existed in choosing to boost revenues over meeting "community expectations."
The financial services Royal Commission continued its line of questioning to IOOF general manager of distribution Mark Oliver. Yesterday afternoon, Senior Counsel Assisting Michael Hodge painted a picture of the retail group's complicated structure.
This morning, the Commission heard APRA raised serious concerns about the IOOF network as part of an industry-wide review in 2016.
It highlighted concerns about the group's culture; the difficulty in obtaining information; questioned the chief risk officer's role; the relationship of senior leaders and the flow of information among them.
IOOF Investment Management Limited (IIML) is the trustee of IOOF's super fund, the responsible entity for several managed investment schemes; and invests in other external managed investment schemes.
IOOF (IFH) is the holding company for the group and a publicly listed company.
Oliver said he joined the group in 2016 and could not comment on APRA's findings other than there were no "material" issues raised.
The Commission also heard IOOF continued to charge more than 40,000 members grandfathered commissions, knowing that 29,000 of these would have been better off under new and lower pricing arrangements.
Oliver argued that because most members were unengaged with their super, the likelihood of them moving to a new a price point was slim.
Hodge put forth that for the 16,000 or so linked to an adviser paying a trail of grandfathered commissions, there was no incentive for them to move to the new price structure notwithstanding that they would be better off. Oliver agreed with this deduction.
Shifting every single member, Oliver argued, was simply unsustainable for the fund's financial viability. And that would only eventuate if IOOF bumped up the new prices. Price differentials for choice and pension members went from 0.85% to between 0.35% and 0.70%.
By not repricing the "back book" of pre-FoFA grandfathered commission arrangements as at 1 January 2014, revenue did not take an $8 million hit.
A statement presented to the board justified this decision. It read that although the fees being proposed for new choice members are being reduced, 50% of the existing choices members will have a higher fee structure than the proposed fee structure and "will not be automatically moved across to the new pricing."
It's common across the industry, it continued, for platforms to have clients at different price points.
To face this conflict, the board ultimately agreed that all new choice members will be notified of the new offering.
Prior to approving and implementing the changes, three directors - including the chair and managing director Chris Kelaher - expressed they felt conflicted by the proposal and didn't cast a vote. But ultimately the board went ahead and concluded they were "comfortable with it."
In another matter concerning FoFA reforms, the Commission found IOOF continued to charge shelf space fees calculated based on volume or funds under management to investment managers such as Aberdeen and AllianceBernstein, when it should not have.
The fund managers paid fees to IFH based on a percentage of funds on the IIML platform - and some paid a "substantial" amount more than others. Aberdeen for example paid, about $136,000 to IFH every quarter while others would pay as little as $1250.
Hodge asked Oliver if the agreement with fund managers have been superseded post-FoFA and if the current fees paid reflect the service IFH provides, to which he replied he was "not aware" and couldn't really comment.