4.4 Changing the pricing for the IPS Fund

In 2018, IIML decided to make some pricing changes as part of ‘Project Evolve’, a broader strategy to simplify IIML’s administration systems.[1]

According to an internal analysis presented to IIML’s leadership group, 29,263 members of IOOF Employer Super (IES) would be better off under the new pricing.[2] The same paper identified an ‘arbitrage risk’: a risk that existing members would move to the new pricing and pay lower fees.[3] However, the analysis said that this risk was different from the risks associated with other repricing decisions because of grandfathered commissions, an ‘unengaged membership’, and the fact that many members would be only marginally better off.[4] The analysis noted that there had been very little member movement after a fee reduction in 2014.[5]

Mr Oliver said that the analysis reflected two assessments made by IOOF.[6] The first was that members who did not have a financial adviser, ‘and were therefore unengaged’, were unlikely to move to the new pricing.[7] The second was that members with a grandfathered trail commission were unlikely to move to the new pricing.[8] Mr Oliver said this reflected IOOF’s experience that ‘products with grandfathered trails tend to take longer to move to a new price point’, even though members would be better off under the new pricing.[9]

In February 2018, a management paper was given to IIML’s board. The paper proposed that new members would be charged according to the new pricing, but that existing member pricing would not change; existing members would be ‘grandfathered’.[10] The paper referred to the ‘arbitrage risk’, but assessed it as a low risk.[11] At the meeting, the board asked management whether the new pricing should apply to all existing clients.[12]

Mr Oliver’s team considered this question. They found that applying the new pricing to existing members would cost $8 million per year.[13] They also found that of the 29,000 members who would be better off, about 20,000 had a grandfathered commission.[14]

Management prepared a revised paper for the board.[15]

The revised paper, dated 2 March 2018, pointed out that:

The setting of fees for superannuation products gives rise to a potential conflict between IIML’s best interests duty to members in its capacity as Trustee and its corporate objective of deriving income from a retail product.

Where there is a conflict, IIML as Trustee of the Products is required to give priority to the duties to, and interests of, members, and act fairly between and within classes of members of the fund.[16]

The revised paper said that about half of the existing members ‘may potentially benefit under the new pricing’.[17] It said that those members would not be automatically moved to the new pricing[18] but that, to manage the conflict identified in the paper, there would be a communication plan where:[19]

All financial advisers will receive notification of the new product pricing and features prior to launch in April 2018. The notice will recommend that advisers review their clients’ current situation and needs, before advising whether it is in their best interests to transfer to the new product offering.

Members would also receive a letter in the mail about the ‘new features and benefits’ and refer them to the updated PDSs that would be available on IOOF’s website ‘if they would like more information’.[20] The revised paper did not say that the letter would tell members about the lower fees. The paper also did not say how many members had grandfathered commissions, or how likely those members were to move to the new pricing of their own accord.[21]

Sometime before 22 March 2018, a director sent an email to management about the matters dealt with in that paper.[22] The director observed that it was in members’ interests to have the lower pricing, but in IIML’s interests for them to have the higher pricing and said that IIML had to prioritise the interests of members.[23]

Management prepared a further paper, dated 22 March 2018, providing more information to the board.[24] This further paper said, as part of the background to the proposal, that upon completion of the simplification project (Project Evolve), IIML ‘will be better placed to deliver lower fees to all members and minimise account erosion, while continuing to invest in the future growth and value enhancement for all members’.[25]

The paper then dealt with a number of matters relevant to members’ best interests.

First, the paper said that IIML could not tell whether individual members would actually be better off.[26] It suggested that if a member moved to a new fee arrangement without grandfathered commissions, ‘they may be charged a separate advice fee from their adviser’ but, as the paper went on to say, that would depend on whether the member sought advice.[27]

Second, the paper said that applying the fee changes to all members who would be better off would reduce the income to the fund by approximately $10 million per annum, which would make any change ‘unsustainable and unviable’.[28]

Third, the paper said that the strategy was ‘not revenue-driven’, but was intended to ‘facilitate a sustainable and viable transition to a more cost-effective structure for all members’.[29]

Fourth, the paper said that appropriate communications would ‘minimise risks of disengagement.[30]

The general tenor of the paper was that an ‘approach which sees the recommended pricing only apply to new members, while allowing all members to access the new pricing on request, based on their personal circumstances and needs, would seem to provide an optimal approach’.[31] The paper did not explain that members without advisers, or members with advisers who received grandfathered commissions, were unlikely to switch to the new pricing.

On 23 March 2018, the board considered the matter. Only the two independent directors voted. They approved the changes and communication plan.[32]


[1] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 206.

[2] Exhibit 5.113, 31 January 2018, Memorandum, Broom and Mason to IOOF Leadership Group, 5.

[3] Exhibit 5.113, 31 January 2018, Memorandum, Broom and Mason to IOOF Leadership Group, 5.

[4] Exhibit 5.113, 31 January 2018, Memorandum, Broom and Mason to IOOF Leadership Group, 5.

[5] Exhibit 5.113, 31 January 2018, Memorandum, Broom and Mason to IOOF Leadership Group, 5.

[6] Transcript, Mark Oliver, 10 August 2018, 4599600.

[7] Transcript, Mark Oliver, 10 August 2018, 4599.

[8] Transcript, Mark Oliver, 10 August 2018, 4600; see also Exhibit 5.113, 31 January 2018, Memorandum, Broom and Mason to IOOF Leadership Group, 5.

[9] Transcript, Mark Oliver, 10 August 2018, 4600.

[10] Exhibit 5.107, 12 February 2018, Board Papers for Meeting of Directors of IIML, 66.

[11] Exhibit 5.107, 12 February 2018, Board Papers for Meeting of Directors of IIML, 66.

[12] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 9; Exhibit 5.109, 13 February 2018, Emails between Oliver, Mason and Others.

[13] Exhibit 5.109, 13 February 2018, Emails between Oliver, Mason and Others.

[14] Exhibit 5.109, 13 February 2018, Emails between Oliver, Mason and Others.

[15] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 15.

[16] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 28.

[17] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 15.

[18] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 16.

[19] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 16.

[20] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 16.

[21] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 15–16.

[22] Exhibit 5.110, 22 March 2018, Email Mota to Broom and Others with Attachment, March IIML Papers.

[23] Exhibit 5.110, 22 March 2018, Email Mota to Broom and Others with Attachment, March IIML Papers.

[24] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 206.

[25] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 206.

[26] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 208.

[27] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 208.

[28] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 208.

[29] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 208.

[30] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 208.

[31] Exhibit 5.111, 12 March 2018, Board Papers for Meeting of IIML Board, 208.

[32] Exhibit 5.112, 30 May 2018, Board Papers, Meeting of IIML Board, 10.

98 thoughts on “4.4 Changing the pricing for the IPS Fund”

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