Former CBA subsidiary fined $1.71m after charging dead people fees

A former subsidiary of the Commonwealth Bank has been fined $1.71 million for charging fees to almost 500 dead superannuation members after it failed to reveal the practice in its disclosure statements.

Avanteos Investments Limited pleaded guilty to 18 offences in December last year for failing to update defective disclosure statements for its superannuation products, meaning fund members were not told they would be charged adviser service fees after they died.

At the time of the 18 offences, Avanteos was a subsidiary of the Commonwealth Bank under the bank’s wealth management arm, Colonial First State.Credit:Michael Clayton-Jones

As a result, a total of 499 dead members were charged almost $700,000 in adviser service fees by Avanteos over a two-year period.

On Wednesday, Judge Trevor Wraight of Melbourne’s Country Court described Avanteos’ conduct as a “very serious failure of corporate governance and an example of a financial corporation putting its own interests above those of its investors” as he fined the company $1.7 million.

“It is therefore, in all the circumstances in my view a serious example of corporate offending and the company’s culpability is relatively high,” he said.

Avanteos’ offending came to light during the banking royal commission’s examination of “fees for no service” conduct.

At the time, Avanteos was a subsidiary of the Commonwealth Bank under the bank’s wealth management arm, Colonial First State.

Last year, CBA finalised a deal to sell its majority stake in Colonial First State to US private equity giant KKR Capital.

In a written judgement published on Wednesday morning, Judge Wraight said that in early 2016, Avanteos senior management became aware that its disclosure documents were defective as they contained a misleading or deceptive statement about the deduction of adviser service fees after a member’s death.

Despite this, Avanteos did not update its disclosure statements, and continued deducting the fees until May 2018.

Between January 6, 2016 and May 1, 2018, Avanteos was aware that its disclosure statements for 18 superannuation products omitted information about its practice of charging fees after a member had died.

“In my view it was clearly practicable to have taken reasonable steps to remedy the defect once it became known,” said Judge Wraight on Wednesday.

“AIL was and is a very large, well-resourced company. AIL was advised by top tier legal firms and as noted above, had indeed received advice confirming the defect. Despite AIL knowing of the defect, it continued to charge fees after being informed of an investor’s death and did so for some 28 months, resulting in 499 deceased members having fees deducted from their accounts.”

Avanteos was convicted and fined $95,000 on each charge, resulting in a total fine of $1,710,000. The maximum penalty for each offence was $180,000.

The criminal case, which was prosecuted by the Commonwealth Director of Public Prosecutions, marked the first time charges have been laid under the Corporations Act for not taking reasonable steps to ensure a defective disclosure document is not distributed.

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