14.2.1 Aon Hewitt
The first concerned Aon Hewitt Financial Advice Limited (Aon Hewitt), which offers financial advice services. It has 185 financial advisers, 149 of whom are authorised representatives of Aon Hewitt. Aon Hewitt is part of the Aon Group, which provides financial advice, insurance, and other professional services.
Three of Aon Hewitt’s advisers switched clients out of their existing default superannuation product, and into a choice product, before 30 June 2017. The timing was significant, because RSE licensees were required to transfer accrued default amounts to a MySuper default option by 1 July 2017. By switching their clients to a choice product, the advisers avoided those funds being transferred. One consequence was that the financial advisers remained entitled to receive trailing commissions. Yet it was not clear that these clients had provided informed consent to the switch. It appeared that many had not been provided with a Statement of Advice (SOA) or Financial Services Guide (FSG), or any advice at all.
The Commission received a statement of evidence from Mr Jayson Walker, the General Manager of Aon Hewitt, about this case study.[1]
The first financial adviser wrote to 331 clients on 18 August 2016 as follows:[2]
[W]e are proposing that your existing super and future contributions be invested in your existing AON Master Trust Balanced Growth – Active investment option. This balanced option helps to ensure that your super is not invested too aggressively nor too defensively, and that your super is not exposed to excessive risks.
…
What do I need to do?
If you are happy to have your existing MySuper balance and future contributions invested in your AON Master Balanced Growth – Active investment option, no further action is required from you. We will do all the work for you to ensure this happens. However, if you wish to leave your Aon MySuper account unchanged, please contact us within 30 days from the date of this letter.
The adviser did not provide any SOA or FSG to those clients, either with the letter or otherwise. There was no indication on the clients’ files that they had been given any advice about whether switching was in their best interests. There was nothing to suggest the clients had given informed consent to switch to the choice product. Nevertheless, the first financial adviser switched all 331 clients to a choice product.[3]
The second and third financial advisers both worked for the same corporate group. Again, it appears that these advisers switched clients to a choice product without providing an SOA or an FSG. Aon Hewitt’s investigation could not find sufficient evidence of informed consent.[4]
Initially, in its breach report to ASIC on 27 March 2018, Aon Hewitt said that the conduct had affected 500 clients of those financial advisers.[5] Since then, Aon Hewitt has undertaken further analysis and is still determining the number of clients who may have been affected.[6] On the state of the evidence, I cannot be satisfied of the precise number of clients of the second and third advisers who may have been affected.
The conduct of each of the three financial advisers only came to Aon Hewitt’s attention when it was issued with notices by ASIC pursuant to section 33 of the ASIC Act in late 2017. Aon Hewitt then commenced an investigation. As a result of that investigation, Aon Hewitt lodged a breach report with ASIC in relation to the three advisers.[7]
Aon Hewitt is now in the process of designing its review and remediation program. It intends to compensate clients for any loss suffered by reason of differences in fees and costs payable and investment returns.[8] Aon Hewitt acknowledged before the Commission,[9] and has acknowledged to ASIC,[10] that it is liable to compensate clients who suffered loss as a result of breaches by the three financial advisers.[11]
14.2.2 Mercer Superannuation
The second case study involved Mercer Superannuation (Australia) Limited (Mercer Superannuation), the RSE licensee of the Mercer Super Trust (the Mercer Fund) and three other superannuation funds.[12]
The Mercer Fund is divided into four divisions: the Corporate Superannuation Division, the Personal Superannuation Division, the Mercer Retail Division and the Mercer Allocated Pension Division (the Pension Division).[13] This case study related to the Pension Division, which in June 2018 had 3,143 members and funds under management of $1.038 billion.[14]
The case study concerned statements made in an internal email, which suggested that Mercer Superannuation was deliberately making it difficult for its members to access a new, lower fee structure.
Three written statements of Benjamin Walsh, Mercer Superannuation’s Executive Director, were tendered in relation to the case study.
In 2013, Mercer Superannuation was preparing for the commencement of FoFA and the Stronger Super reforms. In February, the Mercer Superannuation Board resolved that new fee structures would be introduced in respect of members who joined the Pension Division from 30 June 2013. Trailing commissions would not be paid under these new structures. Existing arrangements, which did allow the payment of trailing commissions, would be grandfathered.[15]
In June 2013, the board delayed the application of the new fee structures to 1 January 2014 so that the change of fees would align with other changes being made because of the introduction of MySuper.[16]
As part of the changes, Mercer staff were considering what process to follow where a Pension Division member wanted to access the new fee structure. An internal email chain showed that one staff member thought members should close their existing account and open a new one. Another staff member replied that doing so would be ‘a lot of work and totally unnecessary’.[17]
Stephen Partridge was the Fund Product Leader at the time. On 12 December 2013, he replied to those emails as follows:[18]
Part of the logic here is that we want to protect our existing APD [Pension Division] revenue as much as possible.
Accordingly we do not intend to advertise the new lower fees to existing APD members and we don’t want to make it easy for them to (a) find out about the new lower fees and (b) access them.
However, anyone who wants can take out a new allocated pension and we cannot stop existing members doing this.
APD members who have a Mercer adviser who is acting in the [members’] best interests will likely initiate this also.
There are some delicate trustee fiduciary issues involved in this decision also.
If we allow existing members to simply apply to have their fees reduced while remaining in the same account with nothing else changing, then Mercer Superannuation is probably obligated to inform existing members of this, which we do not want to do.
I am aware that operationally this is painful and costly, but it is much less costly for the business than advising all the existing members and have most of them apply to have their fees reduced.
This email formed part of a story on Four Corners broadcast by the ABC on 26 March 2018.[19] After the story aired, Mercer Superannuation investigated the email and the way it had communicated with Pension Division members after the introduction of the new pricing structure.[20]
Mercer Superannuation found that while some members would have paid lower fees if the new pricing structure was applied to their accounts, there were other members whose fees would have increased if that new pricing structure had been applied to their accounts.
On 23 July 2018, the board of Mercer Superannuation made an in-principle decision to:[21]
- Align the pricing of all members of the Pension Division, regardless of whether they joined before or after 1 January 2014. This would be done by introducing a new pricing structure for the Pension Division from a nominated future date (provisionally, 1 January 2019).
- Provide a ‘goodwill allowance’ to members of the Pension Division as at 31 December 2013. This allowance would be the difference between their actual account balance on a nominated date (for example, 31 December 2018) and the amount their account balance would have been if Pension Division fees from 1 January 2014 had been capped at 1.5%.
[1] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018.
[2] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, Exhibit 2.2, Appendix A (emphasis in original); see also Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, 3 [22]–[24].
[3] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, 19 [133].
[4] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, 5 [34].
[5] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, Exhibit JW-2 (Tab 2.2) [AHF.001.001.1373].
[6] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, 19 [134]–[135].
[7] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, Exhibit JW-2 (Tab 2.2) [AHF.001.001.1373].
[8] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, 19 [136]–[137].
[9] Aon Hewitt, Module 5 Case Study Submission, 2 [10].
[10] Exhibit 5.345, Witness statement of Jayson Walker, 26 July 2018, 20 [139]–[142].
[11] Corporations Act ss 917A, 917B and 917F.
[12] Exhibit 5.333, Witness statement of Benjamin Walsh, 30 July 2018, 1 [1], 2 [7].
[13] Exhibit 5.333, Witness statement of Benjamin Walsh, 30 July 2018, 3 [10].
[14] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 1–2 [4].
[15] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 5 [20]; Exhibit 5.335, Witness statement of Benjamin Walsh, Exhibit BJCW-116 [MER.501.001.3068 at .3072].
[16] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 5–6 [22]; Exhibit 5.335, Witness statement of Benjamin Walsh, Exhibit BJCW-119 [MER.510.001.0835 at .0845].
[17] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 8–9 [34]; Exhibit 5.335, Witness statement of Benjamin Walsh, Exhibit BJCW-130 [MER.003.001.0638].
[18] Exhibit 5.335, Witness statement of Benjamin Walsh, Exhibit BJCW-130 [MER.003.001.0638] (emphasis added).
[19] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 10 [40].
[20] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 11 [43].
[21] Exhibit 5.335, Witness statement of Benjamin Walsh, 3 August 2018, 11 [43]; Exhibit 5.335, Witness statement of Benjamin Walsh, Exhibit BCJW-136 [MER.547.001.001 at .0030], Exhibit BJCW-137 [MER.300.011.0005].