CBA subsidiary Colonial First State kept 15,000 super members in high-cost funds illegally

AUSTRALIA’S biggest bank kept about 15,000 members in ­higher-fee funds after a legal ­deadline to transfer them to low-cost funds, the banking royal commission has heard.

AUSTRALIA’S biggest bank kept about 15,000 members in ­higher-fee funds after a legal ­deadline to transfer them to low-cost funds, the banking royal commission has heard.

Lisa Elkins, executive general manager of CBA subsidiary Colonial First State, told the ­commission on Tuesday that super members were kept in the wrong fund due to “complexity” in the group’s systems.

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Under rules introduced earlier this decade, fund members with default accounts — those who had not chosen specific ­investment options — had to be moved into low-fee MySuper accounts.

The CBA was supposed to move 15,000 such fund members into the low-cost accounts by January 1, 2014.

It had more than two years notice, but kept them in higher-fee funds beyond the government-imposed deadline.

The customers were ultimately moved into a MySuper ­accounts in a process that only finished in July last year, more than three years after the deadline.

Questioned by counsel assisting the commission Michael Hodge, QC, Ms Elkins acknowledged Colonial had breached the Superannuation Industry Supervision Act.

“The breach was of 29WA,” Mr Hodge put to Ms Elkins.

“Yes,” she replied.

If the law were applied, it could cost the lender $9000 for each offence — a maximum fine of $135 million.

Colonial told the banking watchdog, the Australian Prudential Regulation Authority, of the breach on March 19, 2014.

The watchdog did not prosecute the breaches, the royal commission heard.

Ms Elkins said she was not surprised APRA had not taken action as Colonial “felt we had worked through the contraventions and resolved them satisfactorily”.

She also acknowledged ­Colonial’s attempts to dissuade members from joining MySuper products were “misleading”.

Mr Hodge showed call-­centre scripts and letters to ­customers that were designed to coax the fund members into sticking with higher-fee Colonial products.

“I do accept this script should have been more balanced,” Ms Elkins said of one of the scripts.

“When you say ‘more balanced’, do you mean ‘not misleading’,” Mr Hodge asked.

Ms Elkins eventually said: “Yes I do.”

Mr Hodge said a letter to customers was intended to make them “concerned and apprehensive” about MySuper funds.

“I agree that this letter is not balanced,” Ms Elkins said.

Colonial First State executive general manager Lisa Elkins leaves the Federal Court in Melbourne. Picture: Stuart McEvoy

Mr Hodge claimed Colonial dragged out the MySuper transfers so it could maximise the time members would pay higher fees.

Also at the royal commission on Tuesday, leading super fund Hostplus defended spending $260,000 taking business clients to the Australian Open.

Hostplus had $21 million in marketing expenses last year, the royal commission heard, and its annual marketing outlay had gone up by $8.1 million in four years.

Chief executive David Elia said the leap was because industry super funds such as his had to fight to remain default funds against cashed-up bank-owned funds after the system was opened to competition. Retaining employers “through ­relation­ship-driven ­activities” — such as corporate hospitality — was “absolutely important”, he said.

Such expenses were covered by an administration and marketing budget, funded by a fee paid by each member of $1.50 a week, or $78 a year, he said.

It did not come from investment funds, Mr Elia said.

Hostplus has about 1.1 million members and $34.5 billion under management. It has topped the table for the best-performing balanced super fund in Australia the past two years.

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