5.2 Evidence

From 2012 until August 2018, OPC engaged ANZ to distribute the Retail Smart Choice Super product through ANZ branches.[1] The distribution process followed a ‘scripted general advice model’.[2] It was designed to ‘leverage’ a regulatory exemption that allowed branch staff, who were not financial planners, to provide general advice and sell certain financial products by following a script.[3] Branch staff were not allowed to make a recommendation, provide advice, or take into account any information about the customer. If they knew that Retail Smart Choice Super was not suitable for the customer, they could not say so.[4]

The distribution process was as follows. When a customer came into an ANZ branch for helpabout any matter, not just superannuationbranch staff could conduct an ‘AZ Review’. An AZ Review involved the staff member asking the customer questions about their financial situation, and discussing the customer’s ‘goals and needs’.[5] At the end of the AZ Review, the staff member could recommend retail banking products to the customer.[6] This was a general discussion about the customer’s finances and ANZ’s banking products. It had nothing to do with superannuation.

After the AZ Review, the staff member read the customer a ‘delinking statement’.[7] In full, that statement was:[8]

Now that we’ve completed the AZ Review, would you like me to provide you with some general information on ANZ Smart Choice Super, which is designed to be a simple low cost way for customers to manage their superannuation.

Please be aware that I won’t be able to use or reference any of the information you’ve already provided me when discussing this product with you.

Would you like to know more about this product?

If the customer wanted more information, the staff member would offer to refer the customer to an ANZ financial planner.[9] From June 2015, a referral was only offered to customers with funds under management or whose gross yearly salary was over $50,000.[10] If the customer declined, or no referral was offered, the process would continue.

The staff member would then give the customer a pack of documents that included a product diclosure statement (PDS) and a brochure. The staff member would read aloud the first two pages of the brochure.[11] Those two pages included a ‘general advice disclosure’, which said that the staff member could ‘only provide general advice’ and that the customer should consider if the product was ‘right for you’.[12] From 2014, it also said that the information given by the staff member did not take into account the customer’s ‘personal circumstances, objectives or needs’.[13] The staff member also read out from the brochure a statement of ‘things you need to know’. These were that the customer should consider exit fees or additional costs, changes in investment risk exposure, and loss of any insurance they had through their current superannuation.[14] At this point, if requested, the staff member would help the customer open a Retail Smart Choice Super account.[15]

Mr Pankhurst said that ANZ thought that this process meant customers only received general advice, not personal financial advice (which branch staff were not allowed to provide).[16] ANZ monitored compliance with the process through a ‘mystery shopping’ program, customer surveys and tests of branch staff members. ANZ found that the process was complied with in the large majority of cases.[17]

Between 1 June 2016 and 30 June 2018, 60,466 customers opened a Retail Smart Choice Super account on the same day that they had an AZ Review. Of those customers, 23,967 made a contribution or rollover into their account.[18] In total, 400,988 Retail Smart Choice Super accounts were opened between 2012 and 30 June 2018.[19] When Mr Pankhurst gave evidence, the value of funds under management in Retail Smart Choice Super products was approximately $3.6 billion.[20]

5.2.1The Services Deed

OPC engaged ANZ to perform the distribution process through a services deed executed in August 2012.[21] OPC did not pay ANZ for providing the distribution service.[22] Mr Pankhurst said that OPC would distribute revenue from Retail Smart Choice Super as part of its ordinary arrangements with ANZ.[23]

In 2012 the Deed referred to branch staff providing information ‘within’ the AZ Review process.[24] In September 2016, well after ASIC started investigating the matter, the Deed was amended to refer to providing information ‘after’ the AZ Review process.[25] Mr Pankhurst was ‘surprised’ by the wording of the earlier version, because he had always understood that the information was to be provided after the AZ Review.[26] ANZ submitted that the earlier wording was an error or ‘infelicity of expression’ that did not reflect the actual arrangements.[27] I accept that, in practice, the process operated in the way described above. The earlier version of the Deed simply highlights, perhaps inadvertently, that the sales process was seen within ANZ as inextricably entwined with the AZ Review.

5.2.2ANZ’s consideration of risks

In September 2011, ANZ’s Managing Director of Distribution for Australia Division made a presentation to ANZ’s Chief Risk Officer identifying a number of risks with the ‘scripted general advice’ model. Those risks included a failure to ensure the correct process was followed, failure to provide the general advice warning, and failure to ensure that only general advice was provided.[28] It also included a risk that regular breaches ‘would be seen by the regulator as systemic”[,] putting ANZ’s licence at risk’.[29] The presentation described the ‘inherent risk rating’ of the process as ‘extreme’, but that with controls the ‘residual risk rating’ was ‘medium’.[30] The presentation said that distribution of Tier 1 products (such as Retail Smart Choice Super) through branches was a ‘key component’ of ANZ’s strategy to ‘improve its wealth penetration’.[31] It recommended that the Chief Risk Officer accept the risks.[32]

Two years later, in 2013, ANZ identified a number of specific risks in the distribution process. One was that discussing Retail Smart Choice Super directly after the AZ Review might ‘imply to the customer that the staff member believes Retail Smart Choice Super is suitable for them’.[33] The ‘delinking statement’ and ‘general advice warning’ were intended to address this risk by separating the AZ Review from the provision of information about Retail Smart Choice Super. Another risk, which one paper described as the ‘key risk’, was that customers would switch their superannuation without understanding the consequences, and end up with a less suitable product.[34] The ‘things you need to know’ statement was intended to address this risk.

5.2.3ASIC investigation

In September 2014, ASIC started investigating ANZ’s distribution process.[35] In December 2016, ASIC gave ANZ a ‘position paper’ that said that ASIC suspected that the distribution process breached the law.[36] In May 2017, ASIC sent ANZ a draft court pleading that alleged that the distribution process breached the law.[37] Between May 2017 and July 2018 the parties negotiated. On 5 July 2018, ASIC accepted an enforceable undertaking (EU) from ANZ.[38]

The EU recorded that ASIC held several concerns. One of those concerns was that the distribution process may not have allowed for informed decisionmaking, because customers may not have realised that branch staff were not considering their personal circumstances.[39] Another was that branch staff had provided personal advice.[40] The EU said that ASIC was concerned that ANZ may have breached sections 912A, 964A and 961K of the Corporations Act. ANZ acknowledged in the EU that ASIC’s concerns were reasonably held.[41]

Under the EU, ANZ agreed to stop using the distribution process, or any similar process, within 45 days of the EU.[42] In submissions, ANZ said it had stopped the practice ‘from 18 August 2018’.[43]


[1] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [290]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-221.

[2] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [291].

[3] Exhibit 5.261, September 2013, Sale of Wealth Products by Retail Distribution, 6.

[4] Exhibit 5.261, September 2013, Sale of Wealth Products by Retail Distribution, 5.

[5] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 104 [289].

[6] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 104 [289].

[7] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [291(b)].

[8] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-215 [ANZ.800.873.0025].

[9] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [291(d)].

[10] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [291(d)].

[11] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [291(e)], [291(b)].

[12] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-216 [ANZ.800.873.0001].

[13] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-217 [ANZ.800.873.0009]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-218 [ANZ.800.873.0017]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-219 [ANZ.800.891.0038]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-220 [ANZ.800.875.0001].

[14] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-217 [ANZ.800.873.0009]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-218 [ANZ.800.873.0017]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-219 [ANZ.800.891.0038]; Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-220 [ANZ.800.875.0001].

[15] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 105 [291(f)].

[16] Transcript, Mark Pankhurst, 16 August 2018, 5055.

[17] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 107 [306]; Exhibit 5.257, Witness statement of Mark Pankhurst, 14 August 2018, 3 [9].

[18] Exhibit 5.257, Witness statement of Mark Pankhurst, 14 August 2018, 4 [10]. Due to data limitations, ANZ does not know how many AZ Reviews were conducted before June 2016: Exhibit 5.257, Witness statement of Mark Pankhurst, 14 August 2018, 2 [8].

[19] Exhibit 5.257, Witness statement of Mark Pankhurst, 14 August 2018, 2 [6].

[20] Transcript, Mark Pankhurst, 16 August 2018, 5060.

[21] Exhibit 5.260, 3 August 2012, Deed of Amendment to the Services Deed between ANZ and OnePath Custodians.

[22] Transcript, Mark Pankhurst, 16 August 2018, 5059–60.

[23] Transcript, Mark Pankhurst, 16 August 2018, 5060.

[24] Exhibit 5.260, 3 August 2012, Deed of Amendment to the Services Deed between ANZ and OnePath Custodians, 22.

[25] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-153 [ANZ.800.778.0254 at .0283].

[26] Transcript, Mark Pankhurst, 16 August 2018, 5059.

[27] ANZ, Module 5 Case Study Submission, 6 [19].

[28] Exhibit 5.262, 30 September 2011, Retail Distribution Advisory Risk, Australia Division, 2.

[29] Exhibit 5.262, 30 September 2011, Retail Distribution Advisory Risk, Australia Division, 3.

[30] Exhibit 5.262, 30 September 2011, Retail Distribution Advisory Risk, Australia Division, 3.

[31] Exhibit 5.262, 30 September 2011, Retail Distribution Advisory Risk, Australia Division, 2.

[32] Exhibit 5.262, 30 September 2011, Retail Distribution Advisory Risk, Australia Division, 2.

[33] Exhibit 5.261, September 2013, Sale of Wealth Products by Retail Distribution.

[34] Exhibit 5.261, September 2013, Sale of Wealth Products by Retail Distribution, 4.

[35] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, 107 [300].

[36] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-2 [ASIC.0041.0003.2761].

[37] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-6 [ASIC.0041.0001.7093].

[38] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-221 [ANZ.800.870.0001].

[39] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-221 [ANZ.800.870.0001 at .0004].

[40] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-221 [ANZ.800.870.0001 at .0004].

[41] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-221 [ANZ.800.870.0001 at .0004].

[42] Exhibit 5.256, Witness statement of Mark Pankhurst, 105 [290].

[43] ANZ, Module 5 Case Study Submission, 6 [20].