Shares in IOOF, Australia’s second largest wealth manager, fell as senior executives from the fund manager appeared before the royal commission investigating misconduct in the financial services industry.
At the close, the shares were down 2.7% to $8.73.
Appearing before the commission today were Mark Oliver, IOOF’s head of distribution, and IOOF chief executive Chris Kelaher.
Questioning in the royal commission centred around payments to related parties and the flow of cash back to the super fund from external fund managers when IOOF invests in those funds.
That money ends up with the fund administrators and not the super fund members.
The tone of the hearing took on combative flavour, with Kelaher being asked about breaches of regulations and whether this was “a matter of indifference to you”.
Kelaher replied: “No, it’s not.”
But he didn’t seem sure whether IOOF had a breach review committee. He thought there was one but wasn’t a member of it and hadn’t seen any formal report from it.
Michael Hodge, senior counsel assisting the royal commission, said: “One of the things we are trying to understand is how trustees go about dealing with these volume based fees where a percentage of the investment of the trust’s money is being paid to another part of the retail group.”
An example of this is Aberdeen Asset Management which paid more than $136,000 to IOOF in the March quarter.
IOOF has funds under management, administration and advice (FUMA) of $125.9 billion. In the year to June, net inflows were up 28% to $5.8 billion.
Tendered to the commission today was a letter from prudential regulator APRA to IOOF about the conflicts of interest between members of the IOOF super fund and shareholders of IOOF.
The letter says: “APRA is concerned that the current governance structure has resulted in a lack of demonstrable focus by boards on individual APRA regulated entities as some decisions appear to have favoured the interests of shareholders over the beneficiaries of superannuation funds under trusteeship.”
IOOF was also questioned about a subsidiary, Questor Financial Services, which had reduced distributions to members after a mistake.
Kelaher said its compensation scheme met the “pub test” because he received no complaints from affected super fund members
Hodge: “You say that at no time has Questor received any demands or complaints?”
Hodge: “Can I suggest it would be impossible for members to make a demand or a complaint because they didn’t know what Questor was doing.”
It emerged during the hearing that minutes of board meetings at IOOF appear to be handwritten notes.
Chris Kelaher, the CEO, in response to a question, told the hearing he takes notes at board meetings but these would be “nothing that would be of any interest”.
The royal commission had asked IOOF to produce the minutes from last week’s board meeting.
Hodge asked if some external fund managers pay a percentage of funds under management and some pay a flat fee of $10 a member.
Oliver replied: “That’s possible, yes.”
When regulations changed in 2013 payments based on a percentage were banned.
After that payments were based on the number of members in the fund at $10 a head.
Hodge asked: “Do you know how that $10 is arrived at?”
Oliver replied: “I don’t know the precise basis … but I understand it’s a recovery of the process cost.”
Late last year the ANZ Bank sold its pensions and investments businesses to IOOF for $975 million.
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