12.3 What the case study showed

Four things should be observed about these arrangements.

The first is that the payments described above add up to significant amounts. If IOOF’s income for the March 2018 quarter were repeated for the rest of the year, the payments would be worth more than $9 million annually. ANZ earned more than $13.7 million from these payments in 2017. It is important to remember that these amounts are not total payments across the group. They are only the payments generated from superannuation investments.

The second is that, on the material available, it is not possible to say whether the amounts received from the RE are properly seen as either a fee for service or as cost recovery. In the case of IOOF, the payments were calculated as either a proportion of funds under management or a flat $10 fee per member, depending on when the relevant agreement was made. Mr Oliver said that the $10 amount represented IIML’s processing cost. If the payments made under the earlier contracts were in return for the same services, they would represent a significant windfall for IOOF. In the case of ANZ, no entity in the ANZ group was even required to perform a service in return.

The third is that although this income is derived directly from members’ money, there appeared to be no direct benefit to members. Mr Oliver could not explain, and the evidence did not reveal with any real clarity, where the money received by IOOF Holdings went. Mr Pankhurst said that ANZ considers those payments when setting its fees. But the payments appear to be merely one input among many into ANZ’s pricing model.

The fourth is that the trustee has ultimate responsibility for this income. In the case of IOOF, I accept that IOOF Holdings (rather than IIML) is the contracting entity. But IIML is the trustee of the fund and decides where to invest its members’ money. The evidence was that IIML was aware of the payments but had taken no steps in relation to them. In the case of ANZ, the trustee is itself a party to the agreements under which the payments are made.

Arrangements of this kind may raise two issues.

First, I do not accept that an independent trustee acting in the best interests of its members would allow other parties to receive large amounts of money directly generated from members’ funds with nothing in return. I cannot say whether that is a proper description of what happened in these cases. If it is, it may well follow that the trustee has not complied with the covenant to act in the best interests of members.

The matter not having been so far drawn to the attention of the regulators, I refer the conduct of OPC, Oasis and IIML to APRA for its consideration of whether to take action.

The second issue relates to the duty to give priority to the interests of beneficiaries over the interests of others. Both APRA and ASIC told the Commission that payments of this kind could cause a conflict.[1] They said the conflict could arise because it would be in the trustee’s interest to invest funds to maximise payments, rather than maximise benefits to members. As a result, they said, a trustee should not receive such payments unless the payments were then passed on to members.

This risk may be less significant than it initially appears. Under platform arrangements, the individual superannuation member selects which managed investment scheme to invest in. That is, to the extent that the payments relate to investments through a platform, the trustee has limited scope to direct investments to obtain larger payments. However, the trustee still has control over what schemes are available to members. A risk remains that these payments could inappropriately influence those selections. On the material available, I cannot say whether this has occurred. But the risk would be avoided if the payments were passed on to members.

I make one further observation. It is troubling that in both organisations, the trustee appeared to have little awareness or understanding of these payments. The Commission heard that after the Commission enquired about this topic, the boards of OPC and Oasis asked for a briefing.[2] Yet the information provided to the board in response was, according to Mr Pankhurst, inaccurate. Similarly, it seems that the board of IIML may not have considered the issue. What is more, even after the Commission’s enquiries it remains unclear what happens to the payments made to IOOF Holdings. It should not be the case that trustees of large superannuation funds, forming part of large and sophisticated financial groups, have so little knowledge of what happens to income generated from members’ investments.


[1] ASIC, Module 5 Policy Submission, 6–7 [33]–[41]; APRA, Module 5 Policy Submission, 28–9 [85].

[2] Transcript, Mark Pankhurst, 15 August 2018, 5039; Exhibit 5.254, Draft Minutes OnePath Custodians Meeting 26 July 2018, 13 August 2018.