ASIC suit over Westpac’s super advice ‘tip of the iceberg’

Industry Super’s David Whiteley says he is concerned over the surge in the cross-selling of bank-owned super products.

Industry Super Australia CEO David Whiteley. Picture: Craig Greenhill

The corporate watchdog’s court action against Westpac wealth management arm BT Financial Group for allegedly breaching ­advice laws when cross-selling superannuation products may just be the “tip of the iceberg” for ­future cases involving the big banks’ nest egg products, Industry Super Australia chief David ­Whiteley has warned.

Mr Whiteley, who represents employer and union-backed superannuation funds, highlighted recent survey data that showed a surge in the cross-selling of bank-owned super products over the past three years, which appears to have tripped up Westpac, resulting in court action launched just before Christmas.

The Australian Securities & Investments Commission accused the bank’s subsidiaries, BT Financial Group and Westpac Securities Administration, of breaching the “best interest duty” set out under the Future of Financial ­Advice ­reforms when it encouraged customers to consolidate their savings into Westpac’s own super funds.

“Industry Super Australia is concerned that these allegations may be just the tip of the iceberg,” Mr Whiteley told The Australian.

“ISA raised concerns about cross-selling of super products through banks earlier last year and it is heartening that the corporate watchdog has been on the case.”

While the big banks have long used their wealth management and personal financial advice businesses to sell their super products, a recent Industry Super analysis of Roy Morgan data showed “switching” advice delivered by a financial institution directly to a customer had doubled in frequency over the three years to the end of 2015.

The data revealed that one-fifth of consumers who received advice for superannuation received it directly from the financial institution.

ASIC has alleged Westpac beached advice legislation by providing personal financial advice during two telephone campaigns to customers when it recommended customers roll up their other super funds into their Westpac-­related account. Westpac operates under a “general advice” model, which means the bank is prohibited from doling out “personal ­advice” or specific recommendations on a product.

BT Financial says it rejects ASIC’s interpretation of what constitutes general versus personal advice and will vigorously oppose the action ASIC has brought against it.

BT chief executive Brad Cooper said this would be an important test case for the wealth management industry, which has come under scrutiny in the past few years in the wake of numerous scandals.

According to the Roy Morgan data, the considerable increase in direct advice from the big four banks led to a rise in the amount of customers switching their super products into a bank-owned fund.

While Westpac grew its share of switching customers by 31 per cent over the past five years, ANZ’s share surged more than 200 per cent, albeit off a lower base, suggesting the bank has considerably lifted its focus on the area.

Commonwealth Bank grew its share of switching customers 34 per cent, while National Australia Bank’s slice of the switching market shrunk by 15 per cent.

Mr Whiteley said the latest allegations again raised questions about cultural issues at the banks and the importance of protecting the retirement savings of Australians. “The risk is that the conduct and governance problems of the banks have spread to their compulsory super operations. This could damage workers super nest eggs and reduce confidence in the system,” Mr Whiteley said.

“Compulsory superannuation is not just another financial service to be sold over the counter or over the phone. It is central to our economic future.

“These allegations raise questions about the legitimacy of the banks as guardians of compulsory superannuation.”

The Productivity Commission is reviewing a tender system for default super funds, which are overwhelmingly industry funds.