Ignominious end to super fund advice foray

ANALYSIS

A financial planning business owned by a superannuation fund has been ordered by the Federal Court of Australia to pay a $20 million penalty. Who picks up the tab?

Well, assuming that the superannuation fund has its constitution in order, then the $20 million penalty will likely be paid from the fund’s risk reserve which is accumulated by way of the annual fees levied from its members.

All of which makes last week’s news that Aware Financial Services Australia which was formerly State Super Financial Services Australia had been ordered to pay the $20 million penalty for fee for no service particularly interesting for Liberal Party members of the House of Representatives Standing Committee on Economics who don’t believe use of member funds to pay fines is appropriate.

Those parliamentarians spent a good deal of committee time this month questioning both the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission (ASIC) about why members should pay for the mistakes of super funds.

But what is even more interesting for financial advisers is the fact that State Super’s acquisition of StatePlus was one of the boldest and most expensive forays into the financial planning arena ever undertaken by a superannuation fund and one which ultimately proved to be a costly commercial mis-step.

Not mentioned in last week’s ASIC statement about the $20 million penalty imposed by the Federal Court was that Aware Super had last year written down the value of the StatePlus business to little more than $100 million, representing a 90% write-down.

When Frist State Super purchased StatePlus in 2016 it was seen as something of a coup as the superannuation fund outbid IOOF for the financial planning business which accounted for over 200 financial planners.

However, a succession of financial planning policy changes and other factors served to undermine the value of the business which reportedly lost $400 million of its value in just three years.

Among those changes were the Future of Financial Advice (FoFA) rules and the implementation of a regime which fundamentally undermined financial planning commercial models by removing product subsidies.

Then came the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry and the escalation of complaints around fee for no service to a case study which evolved into the $20 million penalty imposed on the superannuation fund last week.

The bottom line is that while the foray by the big banks into financial planning cost them billions of dollars, the foray by a major superannuation fund covering workers in the NSW public sector appears to have cost it over $500 million.

There are not many weeks left for Federal Parliamentarians to ask why, though their state counterparts may yet prove inquisitive.