Fund Product, Company and Regulatory Updates as at 23 April 2019

Product Updates

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Vanguard launches ETF
The Vanguard Global Multi-factor exchange traded fund (ETF) has begun trading. The strategy chooses from the FTSE Developed All-Cap Index, with large, small and mid-caps in developed markets, and the Russell 3000 Index, which includes the 3000 largest listed companies in the US, and small and mid-cap companies.

Vanguard recommends a minimum investment time-frame of seven years, with fees of 0.33 per cent per annum. An unlisted fund for the same strategy for wholesale investors is available at 0.35 per cent p.a. Alla Kolganova is the new Australian head of Vanguard Australia’s Quantitative Equity Group (QEG), with QEG managing the strategy.

CareSuper reduces administration fees with admin switch
CareSuper has removed several fees as of 1 April 2019 after switching administrators from Link Group to Mercer. The new fee outline is:

  • Contribution splitting fee removed (was $50)

  • Family law splitting fees removed (was $40)

  • Exit fee on withdrawals removed (was $40)

  • Flat dollar-based fee for pension members split in two, from $3 to $1.50 per week

  • Caps on the asset-based administration fee reduced by 25 per cent

  • Direct investment option (DIO) fees will reduce from $25 to $10 per month, with their provider withdrawing from the market in mid-2019

  • Interim tax calculation fees removed (was $150)

Colonial First State drops fees across super and investments, adds new options
Colonial First State has reduced fees across its superannuation and investment platforms, reducing the costs for half a million members. The changes include:

  • Three new low-cost Colonial First State Index options (conservative, diversified, and growth) added to FirstChoice Wholesale and FirstWrap Plus

  • Investment fees on existing Colonial First State Index options reduced

  • Fee reductions across FirstChoice Wholesale platform, FirstChoice Employer Super, and FirstWrap Plus platform from June 2019

  • FirstWrap Plus - tiered admin fees reduced by 30 per cent

  • FirstChoice Wholesale - improved fee rebates for members with starting balances of $100,000 (was previously $800,000)

  • FirstChoice Employer Super - FirstChoice Lifestage (MySuper) investment fees to be reduced

  • Removal of Regulatory Reform Fees across all products

Company Updates

First State Super brings advice in-house
StatePlus, First State Super’s financial advice business, has been brought fully in-house. The move was designed to make financial advice accessible for all its members to improve retirement outcomes.

As a result, StatePlus chief executive Graeme Arnott will move into the deputy CEO role at First State Super. StatePlus general manager of business development and marketing, James Panaretos, and the general manager of financial planning, Andrew Vogt, will leave.

One-stop-shop SMSF platform for accountants and planners launches
A new self-managed superannuation fund (SMSF) platform for financial advisers has been launched, to help advisers with administrative and regulatory burdens. Practical Systems Super is for small accounting and advice firms, and sets up funds, keeps financial records, and monitors investments.

The underlying technology offers cloud-based software for SMSF clients without having to keep up with compliance, licensing and auditing requirements. Practical Systems Super is an Australian-based independent operator moving into the fintech space to provide innovative solutions to product and service providers.

Regulatory Updates

IOOF class action filed after Royal Commission evidence
Law firm Quinn Emanuel Urquhart & Sullivan filed class action proceedings against IOOF Holdings Limited, due to evidence given at the Banking Royal Commission. The class action is funded by the Regency Group. The evidence presented was that IOOF Investment Management and Questor Financial Services, subsidiaries of IOOF, breached their duties as superannuation trustees, and IOOF directors and officers were aware of the breaches, yet failed to act.

As a result of the inaction, the Australian Prudential Regulation Authority (APRA) launched legal proceedings against IOOF in late 2018 to disqualify those directors implicated. As a result of all events, IOOF shares fell more than 35 per cent.

It is alleged that IOOF’s conduct breached its continuous disclosure obligations under the Corporations Act and ASX Listing Rules, and engaged in misleading and deceptive conduct, resulting in shareholders paying an inflated price for ordinary shares in IOOF.

IOOF’s response is that the class action "is speculative and without foundation", with the company intending to defend the claims.

Citigroup to refund over $3m after sale of complex products
After ASIC investigated Citigroup, the company must refund over $3 million to 114 retail clients after losses that arose from structured product investments. Over a thousand customers will receive a letter inviting them to exit the products early without cost. Citigroup considered its advisers to be providing general financial advice, however ASIC believed that parts of its strategies may have led some customers to believe the advisers were offering personal advice.

Advisers were asked to question customers about their personal circumstances, like risk tolerance, and provide financial education to those customers who were unfamiliar with the benefits and risks of structure products.

Citigroup stopped selling structured products at the beginning of 2018 after the investigation.

Super bills on hold
Amendments and legislation to protect young and low-balance superannuation members has been delayed until after the Federal Election, due on May 18. The legislation is designed so that those under 25 years of age and anyone with a balance under $6,000 can opt into insurance, instead of currently having to opt out. Other lapsed legislation includes:

  • The 12-month superannuation guarantee amnesty for non-compliant employers

  • Exemptions for Australian financial services and credit licence requirements when testing financial and credit products and services, part of the regulatory sandbox to encourage innovations in the finance industry

  • Removing the capital gains tax (CGT) applied to the main residence exemption for foreign residents and increase the CGT discount by 10 per cent for gains on affordable housing

New legislation removes incentives for employers to choose super funds
A piece of legislation that did make it through includes the Government putting an end to trustees of superannuation funds incentivising employers to appoint them as their default superannuation fund. Goods and services can no longer be used to encourage employers to nominate a superannuation fund as their default.

Discounts, allowances, rebates or credits for goods and services are also banned. Penalties can be applied to any super fund found attempting to influence employers.

Typical ways that a fund may lure in employers was to buy them tickets to sporting events and entertainment, for example Hostplus’ annual $260,000 on hosting employers at the Australian Open Tennis.