Charging adviser service fees to dead superannuation members: former CBA subsidiary fined seven figures in landmark criminal case
Date of Judgment: 15 June 2022
Court: County Court of Victoria, Melbourne
Partner Agency: Australian Securities and Investments Commission (ASIC)
Summary of Charges:
Avanteos Investments Ltd (Avanteos) pleaded guilty to 18 charges under s1021J of the Corporations Act 2001 (Cth).
On 15 June 2022, the County Court of Victoria convicted and fined Avanteos $1.71 million for failing to update defective disclosure statements, which the Court described as a very serious failure of corporate governance.
The matter was prosecuted by the CDPP after an investigation and referral by the Australian Securities and Investments Commission (ASIC).
The case attracted widespread media interest when it was revealed the former Commonwealth Bank (CBA) subsidiary was not only charging adviser service fees to almost 500 dead superannuation members, but also failed to reveal this practice in its defective disclosure statements.
It was the first matter prosecuted by the CDPP for an offence contrary to s1021J of the Corporations Act.
Section 1021J of the Corporations Act makes it an offence for a company to fail to rectify or prevent further distribution of disclosure statements, upon becoming aware that the statements are defective.
At the time of offending, Avanteos was a subsidiary of the CBA under the bank’s wealth management arm, Colonial First State, and a trustee of superannuation funds. It issued superannuation products, which were offered and sold to retail customers via their financial advisers.
As trustee of superannuation funds, Avanteos deducted various fees from its members’ cash accounts. One such fee was an “adviser service fee,” which was paid to a member’s financial adviser for advice provided in relation to the superannuation product.
Avanteos’ practice was to continue deducting adviser service fees from its members’ accounts, even after it had been notified that the member had died. It would only stop deducting those fees if it received an instruction from the members’ estate to cease the payment.
Avanteos did not disclose this practice to its members through its product disclosure statements for 18 of its superannuation products.
On 6 January 2016, Avanteos’ senior management became aware that its statements were defective because they:
- did not contain relevant information regarding the deduction of adviser services fees, and
- contained a positive implied representation that Avanteos would not deduct those fees after death.
Between 6 January 2016 and 1 May 2018, Avanteos continued to deduct adviser service fees after the death of members. It did not take any steps to ensure that a direction was provided as soon as practicable to prevent further distribution of the defective disclosure statements, such failure being an offence committed under s1021J for each of the 18 affected superannuation products.
Over that time, a total of 499 dead members were charged almost $700,000 in fees by Avanteos, which traded as Colonial First State Custom Solutions. It has since refunded the fees to members’ estates or beneficiaries.
Avanteos was convicted and fined $95,000 for each of the 18 charges under s1021J, amounting to a total penalty of $1.71 million. The company received a discounted penalty due to an early guilty plea. The maximum available fine was $3.24 million.
In sentencing, Judge Wraight noted the seriousness of Avanteos’ disclosure failures:
“The offending can only be described as a very serious failure of corporate governance and an example of a financial corporation putting its own interests above those of its investors in breach of the law. It is therefore, in all the circumstances in my view a serious example of corporate offending and the company’s culpability is relatively high.”
However, His Honour also had regard to the following mitigating factors:
• The plea of guilty was at the earliest opportunity
• Avanteos demonstrated contrition via remediation of its members’ estates
• The company cooperated with ASIC during its investigation
• There were positive prospects of rehabilitation, and
• The company committed to pay ASIC the costs of its investigation, being approximately $1.3 million