8.2.1Marketing and corporate hospitality
Hostplus spends a significant amount each year on marketing and entertainment. In the year ended 30 June 2017, Hostplus’s marketing and entertainment expenses were $21.44 million.[1] This has increased from $13.12 million in 2013.[2] Part of this money is spent on corporate entertainment, where Hostplus senior executives ‘informally entertain current and prospective employers’.[3] For example, the Commission heard that Hostplus spent approximately $260,000 on corporate entertainment for employers to attend the Australian Open tennis competition in 2018.[4]
Mr Elia agreed that the amount spent on marketing and entertainment expenses was ‘not an insignificant sum of money’, but said that it was ‘done for the right purposes’ of retaining the default status of the fund for employers currently with Hostplus[5] and to build brand awareness.[6] Mr Elia said that hosting employers at events such as the Australian Open was a way to establish and retain relationships that are ‘absolutely critical in terms of retaining the default fund status … and, therefore, retaining members’.[7] That is, the ultimate purpose of the entertainment spend was to grow and retain funds to take advantage of scale.[8]
Mr Elia was asked why he thought employers needed to be entertained to select Hostplus as their default fund. He said that the high performance of the fund was not enough to retain default status.[9] He said that Hostplus loses approximately $500 million a year in rollovers to underperforming, and high cost, funds.[10] He said that:[11]
Relationships are absolutely critical. And where you have – you may have one or two individuals ostensibly making default fund decisions on behalf of their entire workforce. Let me tell you, I don’t like it. I don’t like the fact that we lose default fund status or lose employers to other competitors, to poorer performing funds, high fee paying funds. It does not make any sense to me. So retention of defaults is absolutely critical. And unashamedly – unashamedly, we utilise, you know, entertainment, corporate hospitality, in order to strengthen the relationships we have with our employers. You need to do that.
8.2.2Retention strategies
Hostplus’s member retention strategies were directed at members who were inactive and had a balance of $6,000 or less. Mr Elia agreed that inactive members with low balances were less likely to be engaged with their superannuation, and may have moved on to another employer and, as a result, may have joined another superannuation fund.[12]
Where an RSE licensee holds funds in an account that becomes a ‘lost member account’, it must pay those funds to the ATO. An account becomes a ‘lost member account’ where the balance is less than $6,000 and the member is a ‘lost member’ (among other things, where the member has not contacted the fund or made a contribution in the last 12 months).[13]
Hostplus wrote to members who appeared likely to become ‘lost members’ to encourage them to exclude themselves permanently from the ‘lost member’ process,[14] such as by contacting the fund and indicating that they wished to continue to be a member of the fund.[15] One such letter read:
We are writing to advise that your account may soon be closed and your money transferred to the Australian Tax Office. Your account has been identified as at risk of becoming inactive and under current legislation we are required to transfer inactive accounts to the ATO.
…
Please note if your money is transferred to the ATO your super may not experience the same level of investment return as it would with Hostplus.
The letters did not explain why the member would be transferred or the precise effect the transfer might have on their retirement savings.
Hostplus also ran a marketing campaign called ‘Tick the Box Hit the Box Office’.[16] Members were told that if they permanently opted out of the ATO lost member process, they would go into the draw to win a ‘Hoyts VIP Black card’.[17] The evidence was that around 18,500 members responded to the campaign.[18] Approximately 2,000 of those members exited the fund. Of the remainder, 2,000 members had balances of less than $2,000, and approximately 180 members had their balance eroded to $0.[19]
[1] Transcript, David Elia, 14 August 2018, 4865; Exhibit 5.321, Witness statement of David Elmslie, 26 July 2018, Exhibit DE-2 (Tab 5) [HOS.0014.0001.0257].
[2] Transcript, David Elia, 14 August 2018, 4865; Exhibit 5.321, Witness statement of David Elmslie, 26 July 2018, Exhibit DE-2 (Tab 5) [HOS.0014.0001.0257].
[3] Transcript, David Elia, 14 August 2018, 4866; Exhibit 5.172, Witness statement of David Elia, 1 August 2018, 8 [27].
[4] Transcript, David Elia, 14 August 2018, 4867.
[5] Transcript, David Elia, 14 August 2018, 4869.
[6] Transcript, David Elia, 14 August 2018, 4870.
[7] Transcript, David Elia, 14 August 2018, 4867.
[8] Transcript, David Elia, 14 August 2018, 4866; Exhibit 5.172, Witness statement of David Elia, 1 August 2018, 8 [27].
[9] Transcript, David Elia, 14 August 2018, 4867–8, 4870.
[10] Transcript, David Elia, 14 August 2018, 4870.
[11] Transcript, David Elia, 14 August 2018, 4868.
[12] Transcript, David Elia, 14 August 2018, 4848.
[13] Superannuation Industry (Supervision) Regulations 1994 (Cth), reg 1.03A(2)(a) and reg 1.03A(2)(b).
[14] Superannuation Industry (Supervision) Regulations 1994 (Cth), reg 1.03A(2)(a) and reg 1.03A(2)(b).
[15] Exhibit 5.173, 26 February 2015, Letter to Lost Members at February 2015; Transcript, David Elia, 14 August 2018, 4850.
[16] Transcript, David Elia, 14 August 2018, 4852; Exhibit 5.175, 2016, Inactive Template Letter Cycle 1.
[17] Transcript, David Elia, 14 August 2018, 4852; Exhibit 5.175, 2016, Inactive Template Letter Cycle 1.
[18] Transcript, David Elia, 14 August 2018, 4852.
[19] Transcript, David Elia, 14 August 2018, 4852.