Bank lobbied hard to keep trail commissions going

For Commonwealth Bank executives, it was the “Hotel California”: the continued flow of lucrative trailing commissions.

Colonial First State executive general manager Linda Elkins. Picture: AAP

For Commonwealth Bank executives, it was the “Hotel California”: the continued flow of lucrative trailing commissions after retirement savers pulled up stumps on their working lives and switched from contributing to their nest eggs to drawing pensions.

And they were determined to make sure members who’d checked out of their super could never leave.

CBA’s furious lobbying of key government figures, including two assistant treasurers, Arthur Sinodinos and Josh Frydenberg, plus key figures in the Treasury bureaucracy, was exposed yesterday in evidence before the banking royal commission.

The lobbying effort by CBA began at a key moment of opportunity for the financial services sector, shortly after the September 2013 election that turfed out Kevin Rudd’s Labor government and installed the Liberals, headed at the time by Tony Abbott. CBA and other banks were keen to water down consumer protections introduced by Labor in its Future of Financial Advice laws.

So, a month after the election, a CBA delegation led by Harvey Russell, who was head of advocacy for the bank’s wealth management arm, Colonial First State, descended on Canberra.

The team included the executive general manager of Commonwealth Private, Marianne Perkovic, accused during the royal commission of “dissembling” in her evidence; Colonial boss Linda Elkins, whose admissions to the commission include that the bank committed 15,000 criminal breaches and was the “gold medallist” for fees-for-no-service; and Nicolette Rubinsztein, who at the time was a manager at Colonial and is now a director of the Actuaries Institute.

They met with key Sinodinos adviser Paul Giles as part of the government’s “confidential” consultation with the finance industry on FoFA issues.

“Hotel California” was raised, according to a file note of the conversation tendered at the commission. The “government queried whether this would extend the tail of grandfathered payments indefinitely” and asked whether CBA would accept a fixed date in the future to end the flow of commissions.

“We argued this would raise constitutional issues. We argued the decline in gf payments would occur naturally and as a result of regulator scrutiny/pressure.”

Evidence before the commission revealed this did not happen — instead, books stuffed with grandfathered commissions continue to be traded around the industry, five years after new trailing payments were banned.

CFS came away from the meeting happy after Treasury explained the rules “were not intended to impact” when members moved from super to pension in the same fund.

“Treasury would consult with CFS to resolve. A win.”

Elkins’s attempts to bat away suggestions the bank was twisting the arms of government to hold on to the gouge felt flat. “It was more than that, wasn’t it,” said counsel assisting Michael Hodge. “You were lobbying to be able to grandfather commissions when it went from superannuation to pension?

“How was it in the interests of the members of the fund to grandfather commissions when going from superannuation to pension?”

Elkins responded: “In hindsight, I would agree that it’s not and we, you know, shouldn’t have been lobbying for that.”

Elkins also revealed that until now management at Colonial had never even considered whether removing grandfathered commissions would be in the best interests of its members.

“Colonial is now reviewing, is now considering across the board what we need to do in regard to our commission-paying products,” she said.

The bank lobbied the government again in February 2015, by which time Sinodinos was replaced by Josh Frydenberg. In a post-Canberra group email, Rubinsztein told the then head of wealth, Annabel Spring (who left the bank last year), that Perkovic and others “had some very productive meetings in Canberra” with Frydenberg’s chief of staff Martin Codina and Treasury officials.

“Controversial changes are dead,” Rubinsztein recorded.

And yet, Hotel California lives on. They just could not kill the beast.