The Commonwealth Bank (CBA) and Colonial First State Investments Limited (CFSIL) could have avoided conflicted remuneration action by the Australian Securities and Investments Commission (ASIC) over distribution of the Essential Super product if they had better and more transparently structured fee arrangements between them.
That is the bottom line of an analysis by legal firm The Fold, with partner Simon Carrodus suggesting that the whole case could have been avoided if the fee arrangement in question had been structured properly in the first place.
“CBA and CFSIL claimed that the fee paid to CBA was to reimburse CBA for its share of the costs of Essential Super, so why not structure it that way,” Carrodus said while suggesting that it appeared disingenuous to have used a revenue sharing model.
“The fee should have been structured as an end-of-quarter or end-of-year reconciliation,” he said. “This structure would have provided CBA with a fixed dollar payment at the end of each quarter/year based on the actual costs incurred by CBA with respect to Essential Super.”
“True labelling beats smoke and mirrors every time. For years we’ve advised our clients not to rely on loopholes like the Opex exemption. As we are learning, all loopholes eventually get shut down,” Carrodus said.
CBA and CFSIL had a Distribution and Administration Services Agreement in place which saw CBA distributing Essential Super in its branch and digital channels in return for CFSIL paying CBA a fee equal to 30% of the total net revenue the trustee earned from the fund.
ASIC has claimed that Essential Super was the only superannuation fund that CBA staff were trained to sell. It was also the default fund for employees who didn’t choose a superannuation fund.
