IOOF patched up its own superannuation blunder by cutting fund back on payments

WEALTH manager IOOF has been accused of using the superannuation money of its members’ in order to compensate them over its own investment bungle.

WEALTH manager IOOF has been accused of using superannuation fund members’ own money to compensate them after an investment bungle.

Counsel assisting the financial services royal commission Michael Hodge, QC, made the claim Friday as he explored the case of IOOF subsidiary Questor.

In 2009, a Questor-owned cash-management fund accidentally paid $6.1 million too much into a super fund also overseen by Questor.

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The problem was detected in 2011. To return the cash, Questor decided to reduce payments to the super fund over three years, but none of the 9000 super fund members were told.

A whistleblower then cast light on problems with the strategy of reducing distributions to the super fund.

As a result, the IOOF board had to move to compensate some super-fund members who were disadvantaged.

Although National Australia Bank, which was the custodian of the cash-management trust, paid some of the compensation to fund members, it was up to Questor to pay the rest.

But Mr Hodge on Friday revealed that when super fund members were repaid by Questor, it came from the super fund’s reserves.

IOOF managing director Christopher Kelaher leaves the financial services royal commission in Melbourne Friday.

Under questioning by Mr Hodge, IOOF managing director Christopher Kelaher disagreed he had used members’ money to pay them back.

“There was an over-distribution and at the end of the day that over-distribution was compensated for members in full,” Mr Kelaher said. But Mr Hodge persisted.

“No it wasn’t compensated in full — you used members’ money to purportedly compensate them,” Mr Hodge said. “You know that don’t you?”

Mr Kelaher answered: “No — they are your words.”

Mr Hodge asked if Mr Kelaher had ever looked at the financial statements of the super fund to see whether the reserve was an asset of the fund.

“Not specifically,” Mr Kelaher said.

“If the reserve is an asset of the fund, do you accept that it belongs to members?” Mr Hodge asked. “No, it’s an asset of the fund,” Mr Kelaher said. In a letter to the Australian Prudential Regulation Authority, Mr Kelaher had defended the handling of the issue, saying IOOF’s compensation effort had passed the “pub test” of community expectations.

“At all times here, at the end of the day, the aspiration was to return the member to his whole position and compensate him for the period outstanding, and that’s something that we did, and that’s what people would resonate with,” he said.

“That’s what they would want and that’s what they would expect. And that’s the aspiration.”

Earlier in the day, IOOF — a $3.1 billion Melbourne-based company — was ridiculed for producing scrawled, almost illegible handwritten board notes as evidence to the royal commission.

Senior Counsel assisting the royal commission Michael Hodge, QC.

Do you regard it as common practice in this day and age for the minutes of a publicly listed company to be taken by a company secretary handwriting them?” Mr Hodge asked Mr Kelaher.

Mr Kelaher said they could be the notes of the company secretary.

“It looks like (the secretary’s) handwriting,” he said. The notes were usually typed up later, he said.

Also on Friday, documents tendered to the inquiry showed APRA warned IOOF its governance structure seemed to favour shareholders over super-fund members.

Mr Hodge tabled a document given to IOOF by the regulator in 2015.

“APRA is concerned that the current governance structure has resulted in a lack of demonstrable focus by the boards on individual APRA-regulated entities, as some decisions appear to have favoured the interests of shareholders over the beneficiaries of superannuation funds under trusteeship,” the document says.

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