Slater and Gordon and Maurice Blackburn last week filed class action lawsuits against Colonial First State.
The Slater and Gordon-led action, filed on behalf of 500,000 Australians, alleges that victims were charged excessive superannuation fees, which were used by Colonial to pay commissions to financial advisers. This is the fourth action in the larger Get Your Super Back campaign recently launched by the firm and its second against Colonial. The class action covers members of the FirstChoice Super fund.
Maurice Blackburn’s class action, filed on behalf of MySuper account holders, alleges that Colonial broke superannuation law by failing to implement MySuper reforms for members of the FirstChoice Employer Super division in a timely fashion.
The class actions come in the wake of the Hayne Royal Commission, which tackled both subjects of the two lawsuits.
More than $400m in commissions
Slater and Gordon said that the commission found that since 2013, Colonial paid financial adviser or the licensees they worked for more than $400m in commissions, which were funded by charging more fees to super members. It said that many advisers worked for the Commonwealth Bank of Australia, Colonial’s then parent.
Nathan Rapoport, Slater and Gordon special counsel, pointed out that in 2013, the Australian government banned commissions for financial advisers to new members because these commissions were not in the members’ best interests.
“Ever since, Colonial continued to pay commissions with respect to existing members under what became known as the ‘grandfathering exception’, and because of this it continued charging those members higher fees,” Rapoport said. “The Hayne Report found there was no justification for continuing to pay commissions to financial advisers. We agree. Paying these commissions – and as a result charging members higher fees – ripped hundreds of millions of dollars out of members’ retirement savings to profit the financial advisers or the licensees they worked for who were not required to provide any services in exchange.”
The Slater and Gordon class action alleges that Colonial should have stopped paying the commissions for all members, thereby cutting their fees, as it did for new members. Rapaport also said that Colonial’s admission at the commission that some of its conduct fell below community standards and expectations “is an understatement.”
“We believe Colonial’s conduct was in breach of the law and it should be held to account and required to compensate its members,” he said.
Rapoport said that Colonial could have transferred FirstChoice Super members into identical products with lower fees and which paid no commissions.
“Rather than use this power for the benefit of its members, Colonial kept them in the more expensive products, preying on their passivity so it could continue to charge them higher fees to fund the commissions,” he said.
$3.2bn accrued default amount
The Maurice Blackburn-led class action will centre on Colonial’s failure to transition $3.2bn of accrued default amounts (ADAs) to the lower-cost and higher-performing MySuper product in a timely way and in the best interest of super members, principal lawyer Miranda Nagy said.
“The contraventions at the heart of this case resulted in members in FirstChoice Employer Super paying higher fees and receiving a lower investment return for an extended period of time, when they could have been in Colonial’s cheaper, better-performing MySuper product earlier,” Nagy said.
Maurice Blackburn said that class action alleges that Colonial breached its duties to super members because it failed to act as a prudent trustee that put the best interest of beneficiaries first.
“MySuper was introduced to protect the retirement outcomes of Australians by ensuring that consumers weren’t losing money on unnecessary fees and products, and Colonial had a legal obligation over and above a basic moral obligation to move default member balances into MySuper at the time that best met their members’ needs, not their own,” Nagy said.