Colonial First State agrees to pay a $100m settlement to end a lawsuit accusing it of overcharging

Commonwealth Bank’s wealth management arm has agreed to pay $100m to settle a class-action lawsuit accusing it of overcharging its customers.

Colonial First State is the wealth management arm of the Commonwealth Bank. Picture: James Gourley

Commonwealth Bank’s wealth management subsidiary has agreed to pay $100m to settle a lawsuit brought by Slater & Gordon ­accusing it of overcharging thousands of customers, in the largest payout achieved by the class action specialist to date.

The lawsuit, which accused Colonial First State of charging thousands of superannuation customers excessive ongoing fees for years without providing advice, was settled without accepting liability or wrongdoing.

“This is a great outcome for the many thousands of customers who put their faith in Colonial to look after their financial interests but were disadvantaged by the arrangements in place with financial advisers that were not in customers’ best interests,” Slater & Gordon class actions practice group leader Kirsten Morrison said.

It is the highest settlement achieved by the firm which, fin­anced by litigation funder Augusta Ventures, sued Colonial in 2019 on behalf of Colonial’s First Choice pension and super members over high fees charged for seven years until June 2020.

At the time of the lawsuit, CFS was fully owned by Commonwealth Bank, but in 2021 Australia’s largest lender sold a majority stake of the unit to private equity firm KKR.

The lawsuit alleged Colonial did not act in thousands of customers’ best interests by continuing to charge existing members high fees under the commission arrangements.

This was despite legislation being introduced that banned the charging of commissions on new super accounts from 2013 onwards.

Colonial allegedly had the power at the time to reduce the fees or transfer existing members to identical products with lower fees and where commissions were not paid, but this did not happen until 2019 and 2020.

“Colonial First State Investments Limited continues to deny the allegations and makes no admissions of liability or wrongdoing,” the company said in a statement.

Following the 2018 royal commission revelations that many firms were charging customers fees where no service was given, Slater & Gordon launched a string of lawsuits against Colonial, AMP, ANZ OnePath and Westpac’s BT. It settled a class action against BT last year for $29m that claimed thousands of superannuation members had been “short-changed” by the bank’s super funds.

The settlement was subject to court approval and eligible group members would be notified in August, the company said.

Marcel Krieger, the lead applicant in the case, said she joined Colonial’s FirstChoice Personal Super in 2010 during a branch visit to the Commonwealth Bank, where a bank fin­ancial adviser recommended the product.

And although the adviser had mentioned a commission for signing him up, he never sought or received any financial advice.

A separate proceeding against Colonial, where Slater & Gordon claims the company shunted the savings of its members into uncompetitive funds controlled by the parent bank, remains ongoing.

Originally published as Colonial First State agrees to pay a $100m settlement to end a lawsuit accusing it of overcharging