4.6 What the case study showed

4.6.1Did Questor mislead TPS members in breach of section 12DA of the ASIC Act?

Counsel Assisting submitted that Questor may have engaged in misleading and deceptive conduct, in breach of section 12DA of the ASIC Act, by sending the letter to TPS members saying that they would receive compensation for a ‘historical distribution error’.[1] IOOF submitted that such a finding was not open.[2] It submitted that the ‘historical distribution error’ in the letter meant the over-distribution, and on that basis everything else in the letter was true.[3]

There are a number of reasons that I cannot accept this submission.

First, the letter said that the problem had been detected ‘following a periodic review’.[4] In fact, the problem was detected when the new custodian took over from NCS. The statement in the letter was not true. Questor did not submit that it was.

Second, the letter said that a ‘historical distribution error’ had ‘resulted in’ a lower rate of return.[5] As IOOF submitted, the expression ‘historical distribution error’ means the over-distribution. But the over-distribution did not ‘result in’ a reduced rate of return. Questor’s decision to claw back the over-distribution caused the reduced rate of return. The clawback was not inevitable. Questor chose to recoup the loss to the CMT in this manner.

Third, the letter did not explain that the compensation was being paid out of an asset held on trust for those members. Nor did it explain the choices Questor had made that led to the need for compensation.

Taken as a whole, the letter created the impression that an unexplained ‘error’ had reduced members’ payments, and Questor was now paying them back. In fact, Questor had chosen to reduce their payments to make up a loss in a different fund it controlled. It was using money it held on trust for them to pay compensation to them. In this way, the letter may have been misleading.

There is no evidence that this possible contravention of the ASIC Act is presently under investigation. The authority responsible for such a contravention is ASIC. I refer the matter to ASIC, pursuant to paragraph (a) of the Commission’s Terms of Reference for ASIC to consider what course it should take.

4.6.2Pricing changes

Counsel Assisting submitted that IIML may have breached section 52(2)(c) of the SIS Act, and prioritised its own interests over the interests of members of the fund in breach of section 52(2)(d) of the Act, by not applying the new IES pricing to members who would be better off.[6]

IOOF rejected that suggestion. It submitted that the repricing decision was part of a broader strategy to benefit all members,[7] that there was no evidence that retaining revenue was an important consideration for IIML,[8] and that in any case IIML was not able to identify which members would be better off.[9] IOOF emphasised that IIML made the new pricing available to existing members.[10]

There were three troubling aspects of IOOF’s approach to the pricing changes.

The first is that IIML appeared to assume that financial advisers will not act in members’ best interests. Mr Oliver’s evidence was that members paying a grandfathered trail commission are generally slower to move to new pricing, even when it is in their interests to do so. That can only happen if members are not receiving appropriate advice.

The second is that IIML management may not have given priority to members’ best interests. Management knew that members would be better off if they moved, but assumed that they would not. Management relied on that assumption when setting the new pricing. In fact, it set the pricing such that if all new members took it up immediately the product would become ‘unviable’. That is, IIML’s management were proposing a pricing scheme under which either some members would be worse off because their financial advisers failed to act in their interests, or the product would be unviable. Despite apparently believing that some financial advisers would be slow to move clients to lower pricing, IIML’s communication plan relied on those same advisers to advise members about the lower pricing.

Third, IIML management did not explain this to the board. None of the board papers explain IIML’s experience with grandfathering. None of the papers explain how many members were paying trail commission. In those circumstances, the board could not make an informed decision about the proposal or the communication plan.

Having regard to these matters, I am satisfied that IIML may have failed to act in the best interests of members and thereby contravened section 52(2)(c) of the SIS Act. The matter not having been drawn to the attention of the regulator, I refer the conduct to APRA in accordance with paragraph (a) of the Commission’s Terms of Reference, for its consideration.

4.6.3ANZ transaction

Finally, it is as well to say something about the conduct of the OPC Board. OPC is a trustee within a large retail group. The sale of OPC and Oasis was one part of a larger transaction, arranged by and for the benefit of the trustee’s parent group. The trustee’s approval of the SFT was a condition precedent to that transaction.

The tenor of Ms Weekes’ evidence was that the OPC Board was focused on the interests of its members. Her evidence was that the board actively considered the various matters involved, sought more information when necessary, was prepared to challenge management, and tried to think strategically about both the substantive decision and the board’s decision-making processes. That focus on OPC’s members, despite significant and potentially conflicting interests of the parent group, is to be commended.


[1] Counsel Assisting, Module 5 Closing Submission, 65 [228.3].

[2] IOOF, Module 5 Case Study Submission, 11 [45].

[3] IOOF, Module 5 Case Study Submission, 11 [46].

[4] Exhibit 5.116, Witness statement of Christopher Kelaher, 26 July 2018, Exhibit CK-2 (Tab 12) [IFL.0029.0001.1164].

[5] Exhibit 5.116, Witness statement of Christopher Kelaher, 26 July 2018, Exhibit CK-2 (Tab 12) [IFL.0029.0001.1164].

[6] Counsel Assisting, Module 5 Closing Submission, 65 [229.1].

[7] IOOF, Module 5 Case Study Submission, 13 [56].

[8] IOOF, Module 5 Case Study Submission, 13 [59].

[9] IOOF, Module 5 Case Study Submission, 14 [62].

[10] IOOF, Module 5 Case Study Submission, 15 [63].