APRA imposes best interests licence condition on CFSIL

2 July 2020

The Australian Prudential Regulation Authority (APRA) has imposed a new registrable superannuation entity (RSE) licence condition on Colonial First State Investments Limited (CFSIL) to ensure members’ best interests are prioritised in its decision-making. 

The condition follows an investigation by the Hayne Royal Commission that formed a view that CFSIL’s decisions not to bring the migration of certain cohorts of its FirstChoice members into MySuper products forward from just prior to the legal deadline, and to grandfather certain fee arrangements, may not have been in its members’ best interests. 

APRA concluded that CFSIL did not breach the Superannuation Industry (Supervision) Act 1993 but raised concerns on CFSIL’s internal processes for demonstrating how members’ best interests were considered and prioritised.  

The condition required CFSIL to record how it considers members’ best interests and members’ priority covenants when making decisions that materially affect their interests.  

“This measure will improve CFSIL’s practices and also ensure APRA is better able to assess whether members’ best interests are being sufficiently considered and prioritised by CFSIL in future,” APRA said. 

APRA noted that CFSIL did not oppose the application of the new condition, which comes into effect immediately. 

CFSIL’s grandfathering of certain fee arrangements was one of 12 cases that Commissioner Kenneth Hayne referred to APRA for further investigation in handing down the Royal Commission’s Final Report last year. 




Author

Comments

Comments

Could they PLEASE impose the Best Interests Duty to INTRAFUND advice also. in my 15 years helping clients i have come across more than 20 examples where a client was sold an industry fund and changed from an advised fund which had insurances which would cover them for their pre existing conditions, only to find out at claim time with the Industry fund that they arent covered. There is no recourse for these clients to get what they deserve as the indusrty fund sales rep doesnt need to comply with any rukes and is just told to sell sell sell sell (with no regard to the welfare of the client) to get their sales bonuses.

Kenneth Hayne...what a complete legend.
He has really added so much value to the process being so knowledgeable and balanced in his approach.
The unbiased nature of his assessment has been something to behold.

Oversight body
The Royal Commission recommended an independently chaired oversight body of both ASIC and APRA. The Gov't accepted the recommendation.That is, Hayne effectively said, 'ASIC and APRA, you have defects - let's have a bidy to check on you.' Question for readers: how much of recent decisions by ASIC and APRA can be explained by their desire to impress the oversight body about what a great job they are doing? Financial services the meat in the sandwich for bureaucrats to get a good annual performance review?

Ok, time to set the record straight.
When FirstChoice Employer Super members were contacted on multiple and numerous occasions by CFS via mail and email over an extended time frame in relation to their existing investment options and the MySuper options there was an incredible level of detail included in the correspondence.
Many existing members who had strategically arranged and allocated investment options did not wish to have their whole account balance transferred to a single My Super Lifestage option not of their choice.
Their choice was to remain within their existing investment options without change.
They were given that choice to reject the transition and many elected to exercise that choice.
Secondly, many of the FirstChoice Employer Super members were members of large scale employer plans with significant volumes of invested monies.
These larger plans participated in significant fee rebates based on total plan volume that flowed back into every members account based on individual account balances and as a result credited back into the members account a significant amount of fees every year.
There are 2 factors that are important here that has not been highlighted by APRA.
The first is that if a member elected to transfer to the MySuper investment option, the plan fee rebates were no longer available, thereby ruling the member ineligible to receive significant fee reductions.
This would have been a disadvantage to the member.
Secondly, there would have been a one off transaction cost applied to the members account if they had elected to transfer to a single MySuper investment option.
So to clarify the situation at ground level, rather than getting an inaccurate summary.
Members who had already formulated a strategic investment strategy for their account did not wish to be forced into a single option not of their choosing in addition to forgoing the significant fee rebates, not only in the transition year, but every single year following whilst they remained a member of that employer plan.
The cumulative effect of forgoing the plan fee rebates year on year was substantial.
Lastly, they did not want to forgo a cost to facilitate the transaction to a MySuper investment option.
For the most part, MySuper was a strategic process implemented by Govt to control people's superannuation and to remove adviser remuneration from member's accounts.
Member's who had received regular and continued advice regarding investment strategy suitable to their risk profile did not wish to have their account varied and so elected to remain in their existing options.
The members were provided many contact points and response options via post and email from CFS.
They were highly detailed, user friendly and clearly explanatory.
The fact is that APRA & ASIC doesn't like it when members are provided options to act and then allowed to exercise the option that best suits them rather than doing what APRA or ASIC want.
Let's have a statement from APRA that acknowledges the disadvantages that member's may have experienced had they made a decision to move to a mandated MySuper option rather than remaining in their current situation.
That will never come.

Wow, glad the Royal commission’s forensic examination of this has finally been proven nonsense and pure bias by a clearly independent and unbiased citizen. Thank you for setting Mr. Hayne nd all of us straight on this.

Add new comment