Banking royal commission: IOOF hands inquiry handwritten notes on scraps of paper

IOOF has handed over handwritten notes on scraps of paper after Hayne’s inquiry requests board documents.

IOOF managing director Chris Kelaher has revealed his company wanted to get the prudential regulator off its back as APRA attempted to probe the wealth management group over its tangled web of related entities.

The royal commission today heard the Melbourne-based IOOF just last week, ahead of its appearance at Kenneth Hayne’s inquiry into financial services misconduct, moved to dissolve a structure where its wholly-owned investment management arm, known as IIML, is also a superannuation trustee.

However, when the royal commission asked IOOF to hand over board documents, only handwritten notes on scraps of papers, many of which were illegible, were produced.

At hearings for the commission in Melbourne today, it was heard Australian Prudential Regulation Authority had for years been telling IOOF of its “legitimate concerns” about the structure of IIML — which siphoned money out of superannuation customers who invested in its platform products and sent it back to the parent company.

However, Mr Kelaher revealed the move was not made to respond to APRA’s concerns, but that it was just the case that it was “easier” to get the regulator of its back.

“Do you regard it as common practice in this day and age to take meeting minutes in handwriting,” counsel assisting the commission Michael Hodge, QC, asked. Mr Kelaher responded: “It’s been our practice.”

It was unclear from the scraps of paper who had written the notes. “It looks like the handwriting of our company secretary. It looks like them,” Mr Kelaher said. “I’m not a handwriting expert.”

Mr Kelaher was asked whether it met with APRA to discuss issues affecting the fund.

“We have a dialogue with APRA. It’s active, it’s robust. They raise concerns, we respond,” Mr Kelaher responded.

The answer prompted royal commissioner Ken Hayne to interject: “Do I take the answer to be yes?”

Earlier, the royal commission was shown letters sent by APRA to IOOF in 2015 which said that given the size and complexity of IOOF, “the number and range of prudential matters raises concerns for APRA” as the regulator moved away from “individual issues” affecting the group to a probe focused on “the overall culture of IOOF”.

Another letter outlined APRA’s “experience with IOOF in obtaining accurate and current information” in “a number of instances”.

A third letter, in December 2015, said: “APRA is concerned the current governance structure has resulted in a lack of demonstrable focus by boards on individual APRA regulated entities, as some decisions appear to have favour the interests of shareholders over the beneficiaries of superannuation funds under trusteeship”.

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This contrasted with the witness statement, provided to the royal commission on behalf of

 

IOOF general manager of distribution Mark Oliver, which was shown to the royal commission earlier, which said “no material concerns had been raised by APRA in respect of IIML since January 2013” and an industry-wide APRA review in 2016.

The royal commission heard how IOOF also decided not to move customers trapped in a super fund paying now-banned trailing commissions to a new lower-fee product after working out it would cost about $8m a year to do so, documents tendered to the financial services royal commission show.

The commission heard that the two IOOF independent directors who had to decide whether it was in the best interests of members to move them to lower-fee products were not fully informed about the situation.

In a February e-mail, IOOF executive Bruce Mason told other executives that the cost of eliminating the grandfathered commissions would have an “$8m pa revenue impact”.

“There are many grandfathered commission arrangements in the pre FOFA [Future of Financial Advice] backbook,” he said.

Documents tendered to the commission show that one reason IOOF management told the company’s board could justify not cutting fees for existing members of the IOOF Employer Super scheme was that NAB’s wealth division, MLC, had done the same thing “and are about to do it again”.

In March, one IOOF board member, who has not been named, questioned management why the new pricing did not apply to all members.

“Surely it is in their interest to have the lower pricing and in the trustee’s interest to keep them on the higher pricing,” the board member said in a paper querying management.

“Given this, in relation to the 50 per cent of members who currently have a higher fee structure and may potentially benefit under the new pricing, how can we NOT either transfer them automatically to the new pricing or at the very least offer them that option?”