A campaign to stop customers moving to low-fee products has led to Colonial First State being fined $20 million and promising $120 million in compensation.
The pension provider embarked on the campaign in 2014 after it discovered it was in breach of superannuation laws requiring it to place customers’ retirement savings in a no-frills, low-cost MySuper fund unless directed otherwise.
Rather than move each of the nearly 13,000 relevant members into the MySuper product, Colonial wrote to the members and urged them to act to ensure Colonial could continue to receive their super contributions.
Colonial claimed a recent legislative change required it to make contact and required it to hold investment directions.
Each of the three claims was false or misleading.
In calls with customers, its employees failed to mention it was required to transfer their accounts into a MySuper product if no investment direction was provided.
The conduct involved employees in senior management positions and drafts of the letters and calls’ script being sent to watchdog Australian Prudential Regulatory Authority.
The fact Colonial approached APRA pointed away from a finding that Colonial “plotted” to make false or misleading statements, Federal Court Justice Bernard Murphy said on Tuesday.
He said the $20 million fine would have been higher if not for the financial institution’s substantial remediation program to compensate members.
So far, about $77 million has been repaid into 7695 accounts on the assumption members wouldn’t have stuck with their higher-fee fund if not contacted.
A further $45 million to $53 million will be paid to other affected members.
Colonial’s revenue exceeded $1 billion and its net profit exceeded $200 million in each of the three years the campaign was run.
The wealth management group denied it was involved in a “deliberate and considered attempt” to further its own commercial interests.
But it didn’t cavil with regulator ASIC’s submission that the campaign effectively involved it “seeking to take advantage of members of FirstChoice Personal Super whose interests it was, as trustee of the fund, duty-bound to protect”.
“It is important that Colonial, and other participants in the superannuation industry, are not left with the impression that the cost of courting a risk of contravention may be regarded as an acceptable cost of doing business,” Justice Murphy said.