notice of direction under section 912c(1) of the …...nulis nominees (australia) limited abn: 80...

NULIS Nominees (Australia) Limited ABN: 80 008 515 633 AFSL 23646 A National Australia Group Company 105-153 Miller St North Sydney NSW 2060 24 March 2017 Ms Mary Morrisroe Lawyer - Financial Services Enforcement Australian Securities and Investments Commission Level 5, 100 Market Street Sydney, New South Wales, 2000 Dear Ms Morrisroe

Notice of Direction under section 912C(1) of the Corporations Act 2001 (Cth) (Corporations Act) issued on 20 February 2017 (Notice) – Written Statement in response to questions regarding NULIS Nominees (Australia) Limited

1. We refer to the Notice and to subsequent correspondence with the Australian Securities and Investments Commission (ASIC), including the email from Meera Ghelani to Kirsty Magee and Mary Morrisroe dated 1 March 2017. Consistent with that correspondence, set out below is the response of NULIS Nominees (Australia) Limited (NULIS) to the questions in the Notice.

2. This letter adopts the definitions contained in the Notice, unless otherwise specified.

3. We note that the definition of the term Fees in the Notice includes asset based commission. It should be noted that the asset based commission was not a fee. The asset based commission was paid by MLC Limited from the revenue it received from the management/administration fees.

4. References in our response to:

a. the 'Trustee' is a reference to MLC Nominees Pty Limited, as the trustee of The Universal Super Scheme (TUSS), before 1 July 2016 and to NULIS Nominees (Australia) Limited, as the trustee of the MLC Super Fund, from 1 July 2016;

b. the 'Administrator' is a reference to MLC Limited, in its capacity as the administrator of TUSS, before 1 July 2016; and

c. the ‘Business Services Provider’ is a reference to National Wealth Management Services Limited from 1 July 2016.

d. ‘Project SWiFT’ is a reference to the Superannuation With Fee Transparency Project.

e. ‘Management/administration fees’ refers to the fees charged by MLC Limited under the investment policy issued to MLC Nominees Pty Limited and deducted from member accounts prior to the implementation of Project SWiFT in September 2012. These fees included an allowance to cover the asset based commission costs that MLC Limited was responsible for paying to advisers. A detailed description of these fees is set out in our response to question 1.

Executive Summary 5. MasterKey Business Super (MKBS) is a corporate superannuation product designed to enable employers

to satisfy their superannuation guarantee requirements in relation to their employees. MasterKey Personal Super (MKPS) is a personal superannuation product that allows employees to retain their superannuation in the fund if or when they leave their employer and can no longer remain in their employer plan in MKBS. The products are provided through a superannuation fund in accordance with the trust deed.

NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 23646

ASIC.0036.0001.4590

6. Prior to 1 July 2016, the assets attributable to MKBS and MKPS were invested through an investment linked policy with MLC Limited. From 1 July 2016, these assets are invested directly by the Trustee.

7. The Product Disclosure Statement (PDS) issued by the Trustee sets out the terms and conditions (including the relevant fees and costs) applicable to members in MKBS and if they move to MKPS.

8. MKBS is primarily distributed through advisers who have the relationship with the employer sponsor and who provide access to general support services to the employer and its employees. The nature of the services and the adviser's remuneration is agreed between the adviser and the employer (within the terms described in the PDS).

9. Project SWiFT (which is described in more detail in the later part of this letter) made changes to the fee structure in MKBS and MKPS in September 2012. These changes were introduced by the Trustee in the interest of moving from a commission based structure to a fee for service proposition. There were many benefits for members from these changes, most notably a simpler and more transparent fee structure which was intended to give members and employers greater visibility of their fees. Within the following six months, members in two legacy corporate super products also within TUSS were transferred into MKBS and MKPS to extend these benefits to those members as well.

10. We acknowledge that the introduction of the Plan Service Fee (PSF) was not implemented well in that it was applied to members who did not have a linked adviser. As ASIC is aware, the Trustee is in the process of repaying the fees (plus interest) to affected members which is expected to be completed by 30 June 2017.

Background

11. In considering our response, it is important to understand the background and structures within which the Trustee operated. We have set out in an Appendix A to this letter, diagrams which provide a high level summary of the legal and commercial structures under which the Trustee operated in relation to MKBS and MKPS in respect of this response:

a. before the introduction of the PSF;

b. after the introduction of the PSF, but before the successor fund transfer on 1 July 2016; and

c. after the successor fund transfer on 1 July 2016.

A more detailed explanation of these structures follows.

Before the introduction of PSF

12. TUSS was established under a trust deed dated 12 May 1989 (as amended from time to time) (Trust Deed). MLC Nominees Pty Limited was the trustee of TUSS from the date of its establishment.

13. Under TUSS, various superannuation products were offered, including MKBS and MKPS.

14. The Trustee was responsible for informing prospective employer sponsors wishing to establish a plan, the fees that would be payable by their employees in that plan upon its establishment.

15. The Trustee was also responsible for issuing a PDS setting out the terms and conditions (including the relevant fees and costs) applicable to that employer plan in MKBS. Each employee who subsequently became a member of that plan was provided with a PDS. Employers that wished to establish a MKBS employer plan completed the Employer Application form specifying, among other things, the amount of the asset based commission and/or the employer service fee (if applicable) within the terms described in the PDS.

16. Under the Trust Deed, the Trustee could establish in respect of a member, a 'Member Package' comprising of assets held by the Trustee in respect of that member, and the terms (such as the fee structure and investment options) upon which those assets are held. The terms applicable to a Member Package are set out in certain documents provided to members and their employer sponsors (such as the PDS, significant event notices and annual statements). Specifically, this included fees that MLC Limited was entitled to charge under the investment policy held by the Trustee with MLC Limited. These fees included the management/administration fees and employer service fee and amounts paid by MLC Limited to advisers out of those fees.

NULIS Nominees (Australia) Limited

ASIC.0036.0001.4591

17. Prior to the successor fund transfer of members of TUSS to the MLC Super Fund on 1 July 2016:

a. the assets of TUSS were invested predominantly in investment policies with MLC Limited;

b. death and disablement (i.e. risk) insurance on the lives of members of TUSS was held with MLC Limited; and

c. certain administration functions (such as the calculation of member benefits) that were required to be performed under the Trust Deed were outsourced to MLC Limited.

18. The assets attributable to MKBS and MKPS were invested in an investment linked policy called the 'MLC Investment Policy' dated 30 June 2006 (as amended from time to time) (Investment Policy). An investment linked policy is a policy of life insurance issued by a life company under which:

a. an investor (i.e. the Trustee) invests money with the life company; and

b. the life company pays money or assets to the investor on the investor's request (in this case, to pay superannuation benefits to members in accordance with the Member Packages and the law).

19. The Investment Policy held with MLC Limited was also the vehicle through which services relating to the investment and administration of assets were provided by MLC Limited to the Trustee and members.

20. The Investment Policy was held by the Trustee as an investment of TUSS. The Investment Policy was issued by MLC Limited through a number of MLC Limited's Statutory Funds. Relevantly, the assets attributable to MKBS and MKPS were held by MLC Limited through its No. 2 Statutory Fund. Neither the Trustee nor any member had any legal or beneficial interest in the assets invested by MLC Limited that support the Investment Policy and held in the statutory fund of MLC Limited referable to that Investment Policy.

21. Under the Investment Policy, each member's account was kept by MLC Limited as a record of the amount payable to the Trustee by MLC Limited out of the statutory fund in respect of that member. The Investment Policy set out the way in which the value of a member's account was to be calculated, including how fees, costs and expenses, were deducted. Relevantly, MLC Limited was permitted to deduct fees from the assets attributable to MKBS and MKPS held by it.

22. MLC Limited also provided administration services to the Trustee. These services were governed by the following documents (together the Administration Agreements):

a. from 12 December 2006 to 1 July 2014, a Services Level Agreement dated 12 December 2006; and

b. from 1 July 2014 to 30 June 2016, an Administration Agreement dated 23 September 2014.

23. Under the Administration Agreements, MLC Limited’s role in relation to the calculation of member benefits, including the reduction of member benefits for fees, costs and expenses, was largely a record keeping function to ensure the administration of member accounts in accordance with relevant law and Trustee policies and frameworks. As noted above, MLC Limited as issuer of the Investment Policy was responsible for making the actual deduction from a member account maintained in the relevant Statutory Fund (in terms of redemption of assets and member benefit valuation).

24. MLC Limited, therefore, had a number of roles: firstly, as the issuer of the investment policy under which the assets of TUSS were invested, secondly, as the administrator of TUSS and, thirdly, as the issuer of risk insurance policies to the Trustee on the lives of members of TUSS (i.e. as a life insurer). Its third role as issuer of risk insurance policies is not relevant to the topic of PSFs and therefore has not been elaborated on here.

25. This structure was typical of superannuation funds established by life companies. Under that structure, the life company was responsible for the marketing, distribution, day-to-day operation (including administration and assuming the tax liabilities) and investment of the superannuation fund. To cover the costs of these services, life companies typically deducted fees, costs and/or expenses under the life policies pursuant to which the assets of a superannuation fund were invested, and any resulting profit was retained by the life company.


ASIC.0036.0001.4592

26. This was the case with MLC Limited and the Trustee. MLC Limited was responsible for effective delivery of the services promised to employers and members in consideration for the deduction of fees to which it was entitled under the Investment Policy. The Trustee, on the other hand, was responsible for overseeing and monitoring MLC Limited's delivery of the services but did not itself charge fees or make deductions from member benefits. All fees were charged by MLC Limited in its capacity as issuer of the Investment Policy. Under the Investment Policy, MLC Limited (as the issuer of the Investment Policy) was permitted to charge fees by deducting and retaining them from the assets invested in the Investment Policy and held within the statutory funds and crediting them to MLC Limited's shareholder fund. In the case of certain fees, MLC Limited recorded the amounts retained as a debit from the member's account in the records maintained by MLC Limited. MLC Limited paid its costs (including the commission payments made to advisers) out of the revenue it generated from the fees charged under the Investment Policy.

27. Generally MKBS was distributed through advisers who provided access to general services to members and employers. Typically these advisers acted as authorised representatives of dealer groups who held an Australian Financial Services Licence (Advice Licensees). MLC Limited maintained the on-going relationship with the Advice Licensees.

28. Prior to the introduction of the PSF, MLC Limited was responsible for meeting the remuneration to advisers as agreed by the employer sponsor (MKBS) or the member (MKPS). These amounts were payable to Advice Licensees and were met out of the fees charged and deducted by MLC Limited under the Investment Policy.

29. The Advice Licensees and advisers also maintained their own relationships with prospective employers and with employer sponsors and members of TUSS. In an MKBS plan, before and after the changes to the fee structure introduced through Project SWiFT, the amount of an adviser's remuneration, and the services to be offered by the adviser to members in exchange for that remuneration, could be negotiated and agreed between the employer and the adviser. The Trustee was not a party to the negotiations or the agreement between the employer and the adviser and was informed of the remuneration agreed to by the employer in the Employer Application form to establish the employer plan or on any subsequent change to that arrangement. The Trustee's relationship with employer sponsors and members was primarily managed through MLC Limited, the Advice Licensees and advisers.

After the introduction of the PSF, but before the successor fund transfer on 1 July 2016

30. In April 2012, the Trustee decided to change the structure of fees and charges applicable to MKBS and MKPS (through Project SWiFT). One of the key changes of Project SWiFT was to replace the existing asset based commission and employer service fee in MKBS and MKPS with a single explicit fee (i.e. the PSF).

31. The Project SWiFT changes were introduced before the FOFA reforms were enacted and took effect in September 2012. At that time, it was not clear whether the FOFA reforms would grandfather existing commission structures that had become the norm within the superannuation industry. It was against this background of regulatory uncertainty that Project SWiFT was implemented.

32. The new fee structure was designed to ensure that on implementation the existing services offered by advisers to members could continue and the level of adviser remuneration would remain the same whilst:

a. making the MKBS and MKPS fee structure simpler, more transparent, explicit and easier for members to understand;

b. giving members greater visibility of their adviser’s remuneration by replacing asset based commission with an explicit fee, deducted from their account; and

c. allowing members to request lower fees (which in the case of MKBS members required them to make the request through their employer).

33. Upon the introduction of the PSF, the Trustee took on the responsibility for the payment of adviser remuneration as a cost or expense of TUSS. As the assets attributable to MKBS and MKPS were still invested under the Investment Policy, the Trustee authorised MLC Limited to make the payment by a deduction from the assets held by MLC Limited in its statutory fund.

34. MLC Limited’s role as Administrator in this instance was unchanged from prior to the introduction of the PSF (that is, it still maintained the records supporting the calculation of the member benefit, including the resulting decrease in the member benefits associated with the deduction of the PSF).

35. However, unlike the structure before, the payment of adviser remuneration was made out of those assets by authority of the Trustee (rather than out of the fees charged by MLC Limited under the Investment Policy) and recorded as a 'Plan Service Fee' against the accounts of relevant members.


ASIC.0036.0001.4593

After the successor fund transfer on 1 July 2016

36. On 1 July 2016, all of the members of TUSS were transferred by way of a successor fund transfer to the MLC Super Fund. On that date:

a. the trustee responsible for the MKBS and MKPS changed from MLC Nominees Pty Limited to NULIS;

b. MLC Limited's role as administrator of TUSS ceased; and

c. National Wealth Management Services Limited commenced provision of Superannuation Business Services to the Trustee under a Superannuation Business Services Agreement.

From 1 July 2016, the entity currently authorised to charge the PSF is NULIS, the trustee of the MLC Super Fund, under the trust deed for that fund. This is done by the Business Services Provider, acting on behalf of the Trustee under the Services Agreement dated 30 June 2016.


ASIC.0036.0001.4594

NULIS’ response to the Notice questions Fees prior to introduction of PSF

Question 1(a)

Please provide a description of the nature and purpose of the Fees including:

i. What were the Fees? In your response, please include a description of the purpose of the Fees;

ii. the fee structure and basis for charging the Fees (including a breakdown of each element of the Fees, the total amount of the Fees and how the Fees were calculated;

iii. To whom the Fees were paid, and, if the Fees were paid to multiple recipients, the relevant percentages used.

In providing our response to question 1, we have assumed that the question relates only to MKBS and MKPS (being the products to which the PSF was introduced).

Prior to the introduction of the PSF, the management/administration fees (including allowance for asset based commission) and employer service fee (if applicable) were charged by MLC Limited as issuer of the Investment Policy. There were two types of fees:

1. Management administration fees, and

2. Employer service fee.

We set out the details of these two types of fees below, including the components that made up the management/administration fee:

1. Management/administration fees

Management/administration fees comprised the following:

• administration fee;

• account fee; and

• additional management fee.

The purpose of these fees was to cover MLC Limited's costs of managing the life policy assets, supporting the member’s investment in TUSS, as well as the administration of TUSS in accordance with the terms of the Administration Agreements.

Administration fee

The purpose of the administration fee was for administration and record keeping services provided by the Administrator associated with managing a member’s investment.

The fee structure was as follows:

• An administration fee of 1.53% pa of MKBS and MKPS members’ entire balance. This fee was deducted from the assets in the Investment Policy, by allowing for it in the daily unit price for each investment option.

• For MKBS members, depending on the value of their employer’s plan in MKBS , they may have received a rebate (Large Plan Rebate) on the administration fee as shown in the table below1:

1 The tables are extracted from the MLC MasterKey Business Super PDS dated 21 November 2011, Part 1, Section 6 – Fees and costs and Part 4, Fee Flyer.


ASIC.0036.0001.4595

• In some cases (typically for MKBS employer plans with total member balances over $5 million) a higher rebate may have applied. The actual rebate rate applicable to a member was shown in the welcome kit sent to the member after they commenced in MKBS.

• When a MKBS member was transferred to MKPS, instead of the Large Plan Rebate that may have applied to them previously, they may have been entitled to a rebate (Large Account Rebate) on the administration fee as shown in the table below1:

• The Large Plan Rebate for MKBS members, and Large Account Rebate for MKPS members, was

calculated monthly and recorded as a credit to the member’s account in the records maintained by the Administrator.

Asset based commission

• The administration fee included an allowance for asset based commission. Asset based commission was paid to an adviser (where applicable) by MLC Limited from the administration fee it received. The purpose of the asset based commission was for arranging the commencement of an MKBS plan and for providing access to on-going general support services to members in MKBS and MKPS.

• For MKBS members, the asset based commission was 0.33% pa. The employer and adviser could negotiate a lower asset based commission at the commencement of the plan or subsequently. If this was agreed, the asset based commission paid by MLC Limited to the adviser was reduced to reflect the agreement between the employer and the adviser and the difference was rebated monthly and recorded as a credit to the member’s account in the records maintained by the Administrator.

• For MKPS members, the asset based commission (allowed for in the administration fee) varied as shown in the table below1:

• MKPS members could negotiate with their adviser and agree a lower asset based commission at any time.

If this was agreed, the asset based commission paid by MLC Limited to the adviser was reduced to reflect the agreement between the member and the adviser and a rebate was paid back to the member’s account. If applicable, the rebate was calculated monthly and recorded as a credit to the member’s account in the records maintained by the Administrator.

Account fee

The purpose of the account fee was for administration and record keeping services provided by the Administrator associated with managing a member’s investment.


• For MKBS members, the amount of the account fee was determined by the method that would be used by the employer to make their contributions, or whether the plan had an insurance arrangement with a life insurer other than MLC Limited. The account fee was: o $4.12 per month where the employer had agreed to make contributions by electronic methods; or o $6.47 per month where the employer would be making contributions by other methods (e.g. by cheque)

or if the plan had an insurance arrangement with a life insurer other than MLC Limited.

• For MKPS members, the account fee was $6.47 per month.


ASIC.0036.0001.4596

• This account fee was charged monthly and recorded as a deduction from the member’s account in the records maintained by the Administrator.

Additional management fee

The purpose of the additional management fee was for administration and record keeping services provided by the Administrator associated with managing a member’s investment. It only applied to a member when the member’s balance was below $5,000.

The additional management fee was:

• 0.13% per month, for both MKPS and MKBS members;

• charged on the difference between a member’s account balance and $5,000;

• calculated and (if applicable) charged monthly and recorded as a debit from the member’s account in the records maintained by the Administrator.

2. Employer service fee

The purpose of the employer service fee was to meet the cost of remunerating the adviser as instructed by the employer for providing access to on-going group based support services to members in the employer plan in MKBS and access to general services to the employer in relation to establishing and on-going support of the MKBS plan.


• In relation to MKBS, the employer and adviser could negotiate and agree an employer service fee. If this was agreed, all members in the employer plan paid this fee, which could be up to 1.1% pa of a MKBS member’s entire balance. It may have been expressed as a dollar amount, provided the actual amount charged to any member did not exceed this limit.

• Note: the combined adviser service fee (a fee agreed to by an individual member to pay to their adviser for personal advice services) and employer service fee could not exceed 2% pa of a member’s balance or $2,200 pa, whichever was greater.

• The employer service fee (if applicable) was charged monthly and recorded as a debit from the member’s account in the records maintained by the Administrator.

• When an MKBS member was transferred to MKPS, the employer service fee (if applicable) would cease to apply.

• If no employer service fee was agreed between the employer and the adviser (or if there had been an agreement but the adviser was removed), all members in the relevant MKBS employer plan were not charged that fee.

Question 1(b)

Were the Fees charged to all members? Please explain who the Fees were charged to and why.

Management/administration fees

The management/administration fees comprised the administration fee, account fee and additional management fee. These fees were charged to all MKBS and MKPS members, although it should be noted that:

• The amount of the account fee could vary across each employer plan in MKBS, but all members in a MKBS plan paid the same account fee (refer to 1(a) above for full information);

• The additional management fee only applied when a member’s balance was less than $5,000;

• Rebates were available to MKBS members in large plans and MKPS members with large account balances in recognition of the reduced administrative costs associated with larger plans/accounts.

The asset based commission was included in the administration fee charged to all MKBS and MKPS members. As explained in our response to question 1(a) above, if a lower asset based commission was negotiated (between the employer and adviser for MKBS plans or between the member and the adviser for MKPS accounts), the difference was rebated back monthly and recorded as a credit to the member’s account in the records maintained by the Administrator.


ASIC.0036.0001.4597

Employer service fee

The employer service fee (if applicable) was charged to MKBS members where this fee had been agreed between the employer and adviser. The fee was charged to all members in the plan because all members in the plan had access to the on-going group based services offered by the adviser to all members in the plan. When a MKBS member was transferred to MKPS, the employer service fee (if applicable) would cease to apply. Note: If no employer service fee was agreed between the employer and the adviser (or if there had been an agreement but the adviser was removed), all members in the relevant MKBS employer plan were not charged that fee.

Question 1(c)

Were members permitted to opt-out of, or elect to reduce, the Fees? If so, how was this communicated to members? How could members request or affect the opt-out?


As mentioned in 1(a), the management/administration fees comprised the administration fee, account fee and additional management fee. MKBS and MKPS members were not permitted to opt-out of, or elect to reduce these fees. MKBS employers could elect to reduce the asset based commission (allowed for in the administration fee). If this occurred, all members of that MKBS plan would receive a rebate which would effectively reduce the fees paid by members. This was communicated through the PDS (see Excerpt 1 below) and the PDS – Fee Flyer (see Excerpt 2 below).

Excerpt 1 - 21 November 2011 MLC MasterKey Business Super PDS, Section 6 Fees and costs, page 4


ASIC.0036.0001.4598

Excerpt 2 - 21 November 2011 MLC MasterKey Business Super PDS - Fee Flyer, page 6

Through negotiations with their adviser, MKPS members could elect to reduce the asset based commission (and receive a rebate which would effectively reduce the fees they paid). This was communicated through the PDS (see Excerpt 1 above) and the PDS Fee Flyer (see Excerpt 3 below). Excerpt 3 - 21 November 2011 MLC MasterKey Business Super PDS - Fee Flyer, Explanation of fees and costs, page 7

MKPS members could request to opt-out or reduce the asset based commission, by informing the Administrator.


ASIC.0036.0001.4599


This fee only applied to MKBS members, and only if the employer and adviser agreed. If it applied, MKBS members were not permitted to opt-out of, or elect to reduce this fee.

This was communicated through the PDS and the Fee Flyer.

Question 1(d)

What entity was authorised to charge the Fees? What was the role of the administrator or trustee in charging the Fees?

MLC Limited as the issuer of the Investment Policy was authorised to charge the Fees under the Investment Policy entered into by the Trustee. See our response to question 23 below for details about the relevant provisions of the Investment Policy.

The role of MLC Limited as the Administrator was to maintain member records.

The role of the Trustee under the Trust Deed in respect of the Fees was to administer the terms of the Member Packages, of which the Fees form part. The Trustee outsourced this function to MLC Limited as Administrator and as Investment Policy Issuer. The Trustee also had other more general roles in relation to the Fees as required under relevant law (for example fiduciary obligations as defined in the prudential regulatory framework).

Question 1(e)

If details of the Fees were recorded in a document or investment policy, what was the name of the document/policy and what did it say about the Fees? How was the document/policy communicated to members?

As mentioned above, Fees were able to be deducted by MLC Limited under the Investment Policy held by the Trustee. Details of the relevant provisions of this document are set out in our response to question 23 below.

The Investment Policy does not detail the actual fees payable by each member but rather the maximum fees that can be charged (relevantly, Appendix 1 of the Investment Policy). Under clause 7 of the Investment Policy, details of the actual fees applicable to each member were to be documented in the various notification documents sent to the member. See our response to question 1(h) below for more information about the notification documents sent to the member.

Question 1(f)

If there was a fee for an adviser included in the Fees, what was their role, what services did they offer, and who or which entities received the fee charged for the adviser?

The adviser remuneration comprised of asset based commission and the employer service fee if applicable.

As outlined in our response to question 1(a) above, the administration fee included an allowance for the asset based commission. This was an on-going adviser payment paid by MLC Limited for arranging the commencement of an MKBS plan and for providing access to on-going general support services to members in MKBS and MKPS.

An employer service fee could be negotiated between the employer and the adviser for an MKBS plan and remunerated the adviser for offering access to on-going group based support services to members and access to general services to the employer in relation to establishing and on-going support of the MKBS plan. It could only apply to MKBS members, and was only applied to members in an MKBS plan where the employer and adviser had agreed to implement this fee.

Both the administration fee and employer service fee were deducted by MLC Limited, as the issuer of the Investment Policy pursuant to the conditions of the Investment Policy. MLC Limited paid the asset based commission and employer service fee (if applicable) to the Advice Licensee, who then arranged for these amounts to be paid to the adviser (either in part or in full depending on the terms of their agreement).

Where there was no adviser, no asset based commission was paid. This means the portion of the administration fee relating to the asset based commission was retained by MLC Limited.

In some instances, for larger employer plans, the employer used a tender process and negotiated a lower asset based commission.


ASIC.0036.0001.4600

Question 1(g)

Was any aspect of the Fees negotiated or agreed between employers and advisers? If so, what were the terms upon which the negotiations or agreements could be made? Was this communicated to the administrator or trustee?

Yes, some aspects of the Fees could be, and were, negotiated or agreed between the employer and the adviser within the maximum limits set out in Appendix 1 of the Investment Policy and/or the PDS.

The asset based commission could be negotiated between the employer and the adviser to be a lower rate than what was specified for the administration fee.

The employer service fee of up to 1.1% pa of a member's account balance (subject to the limits specified in the response to question 1(a)) was agreed between the employer and the adviser.

Both the asset based commission and employer service fee (if applicable) were communicated to the Administrator and the Trustee through an Employer Application form at the time of establishing the employer plan.

Renegotiated adviser arrangements were communicated to the Administrator and the Trustee by either the employer or the adviser. Any request to increase the adviser remuneration arrangements needed to be agreed to in writing by the employer.

Question 1(h)

How, and when, was information about the Fees disclosed to members? If it was communicated in a particular document, what is the nature of that document?

When joining the employer plan, information about the Fees was disclosed to the member in a welcome kit, which comprised:

• A PDS that provided more general information and details of all of the fees. The PDS included references to the full PDS package, available online, which included the fee flyer setting out fees and costs.

• A personalised letter that provided the member with details of fees that were particular to their employer plan, and included (if applicable) their account fee, employer service fee, Large Plan Rebate and asset based commission rebate.

.If the Fees were changed, the Trustee informed the members of the change in writing. In the case of an increase in any of the Fees, members were notified at least 30 days prior to the change taking effect.

Each year, MKBS and MKPS members were provided with an annual statement detailing:

• the member’s account fee and employer service fee; and

• the actual dollar amount debited or credited throughout the year for the account fee, employer service fee, additional management fee, Large Plan Rebate and asset based commission rebate, as applicable.

Additionally, when a MKBS member was transferred to MKPS due to leaving the service of the employer, they were provided with a Porting Kit, comprising of:

• a personalised letter that provided the member with details of their MKBS account and the actual dollar amounts debited or credited up until they were transferred to MKPS; and

• information about their new MKPS account and the level of the member’s account fee, and a referral to the PDS for more information about fees, available on mlc.com.au.

PSF introduced to MKBS/MKPS (Project SWiFT)

Question 2

Please explain who (including their role) made the decision to introduce the PSF into MKBS and MKPS? In your response, please include a description of the reasons for the decision.

The introduction of the PSF was part of the adoption of an integrated package of changes known as the 'Super With Fee Transparency' or 'SWiFT' proposal. The decision to approve the integrated package of SWiFT changes was made by a resolution of the Board of the Trustee on 19 April 2012 after considering whether, on balance, the majority of members would be better off following the changes.

Other key drivers for the introduction of the package of changes, including the PSF, included:


ASIC.0036.0001.4601

• moving to a simpler and more transparent fee structure where the administration fee was unbundled from the unit price and made explicit to members, allowing easier comparability;

• discontinuing the asset based commission, which was included in the pre-Project SWiFT administration fee charged by an allowance in the daily unit price (and hence less visible to members) and the employer service fee and replacing them with the PSF (an explicit fee visible to members as a debit from the member’s account, much more transparent and visible to members); and

• providing a foundation for the Future of Financial Advice requirement for a prospective ban on upfront and trailing commission.

Question 3

Please explain the decision making process, including:

a. matters considered as part of the decision;

b. The role of the trustee, administrator and insurer.

Any changes needed to be agreed by both MLC Limited as the issuer of the Investment Policy and the Trustee as the holder of that policy. The Trustee understands that the Project SWiFT proposal was considered by the Board of MLC Limited on 28 February 2012, which resolved that the integrated package of Project SWiFT changes be proposed to the Trustee. The Project SWiFT proposal was presented to the Trustee for approval at a meeting of its Board on 19 April 2012. The Trustee considered a proposal tabled at the meeting which included the following key matters:

• the benefits to members of the Project SWiFT proposal;

• implementation and timing of the proposal;

• confirmation that the proposal would not result in the restructured fees exceeding the maximum fees provided for under the Investment Policy;

• the impact of the fee changes on members; and

• other matters referred to in the response to question 2 above.

Question 4

Was the decision to introduce the PSF recorded in a document? If so, what was the nature of the document?

The decision to accept the SWiFT proposal (which included the introduction of the PSF) was made by the Board of the Trustee at its meeting on 19 April 2012 and recorded in the minutes of that meeting.

Question 5

Please provide a description of the nature and purpose of the PSF including:

5(a) the purpose of the PSF;

The purpose of the PSF is to remunerate an adviser for providing access to:

• general services to the employer in relation to establishing and on-going support of the MKBS plan; and

• on-going general advice and support services to members. The fee is a single explicit fee that was equal to the sum of the existing adviser related remuneration arrangements for general services to members. It allowed for members to have access to the same general services as originally agreed between the employers and advisers, for the same level of adviser remuneration.


ASIC.0036.0001.4602

5(b) the fee structure and basis for charging the PSF (including a breakdown of each element of the PSF, the total amount of the PSF, and how the PSF was calculated);

At the time of introducing the PSF (Project SWiFT, September 2012)

The PSF is a percentage of the member’s account balance. Alternatively it may have been a dollar amount, as long as it didn’t exceed the limit of 1.5% of the member’s account.

The rate of the PSF was equal to the asset based commission (less any negotiated rebate) plus the employer service fee (if applicable) that previously applied.

Post Project SWiFT

For new MKBS plans that commenced after the introduction of the PSF, the PSF was agreed between the adviser and the employer. Maximum limits of 1.5% of the member’s account applied. Since the introduction of MySuper to MKBS and MKPS, the PSF ceased to apply to new MKBS plans and to new members joining MKBS from 29 November 2013.

Transfers to MKPS

Members are moved to MKPS upon ceasing employment with the employer sponsor of an MKBS plan. If a PSF applied to the member in MKBS, it will continue to apply in MKPS as the adviser remains linked to the member’s account to offer access to on-going general advice and other support services to the member, The rate of PSF that applies in MKPS is set at the same rate as in MKBS except in circumstances where it would be above the disclosed cap of 0.44% pa, in which case it is reduced to the disclosed cap. .

MKPS members can negotiate a lower fee with their adviser.

How calculated

Prior to the introduction of MySuper on 29 November 2013, the PSF charged for a member was calculated each month as follows:

• the PSF rate pa that applied to the member;

• divided by the number of days in the year;

• multiplied by the number of days during the previous month;and

• multiplied by the member’s average account balance during the previous month.

From 29 November 2013, existing members with a PSF arrangement already in place continue to pay the PSF. However, the PSF is only charged on the member’s balance invested in investment options other than the MySuper investment option. It will cease completely if the member’s entire balance is invested in the MySuper investment option. If applicable, the PSF continues to be calculated and charged monthly. A tax benefit applies to fees charged. The PSF fee rates quoted in this response are before the tax benefit. After fees are deducted, the tax benefit is credited back which effectively reduces the fees by 15%. The fee deductions and tax credits are recorded in the member’s account, in the records maintained by the Administrator.

5(c) whether different rates of the PSF were charged to members and, if so, why? (e.g. TERP PSF Breach Report refers to a rate of 0.22% for some members);

The same PSF rate applied for all members in a MKBS employer plan.

However, different rates of the PSF were charged to members as outlined below:

• for members in both MKBS and MKPS, the PSF introduced by Project SWiFT in September 2012, was a direct replacement of the existing adviser remuneration arrangements that applied prior to Project SWiFT;

• for MKBS members, any subsequent change agreed between the employer and adviser, and

• for MKPS members, any subsequent change agreed between the member and adviser,


ASIC.0036.0001.4603

subject to the disclosed maximum of up to 1.5% pa. This limit was set having regard to the prior maximums that applied to the asset based commission (0.33% pa) and employer service fee (1.1% pa).

Since 2012, there have also been legislative and product changes which have resulted in changes to the PSF being charged, as follows:

• At the time of introducing the PSF in September 2012, the rate that applied to each individual member equalled the asset based commission (less any employer and adviser negotiated rebate) plus explicit employer service fee (if applicable) that applied prior to the change (see our response to question 1(a) above for further detail regarding these earlier fees). This resulted in the establishment of varying rates of PSF. For MKBS, this was between 0% and 1.5% pa, dependent on the member’s employer plan. For MKPS this was between 0% and 0.66% pa. (Note: for members transferred from MKBS to MKPS after September 2012, the maximum PSF is 0.44% pa).

• Members who joined MKBS after September 2012 and before 29 November 2013 were also charged the PSF from the date they commenced in MKBS if there was a PSF arrangement in place for that employer plan.

• Members transferred into MKBS and MKPS through Project Encompass or the TERP Transfer were charged the PSF from the date they commenced in MKBS. The PSF equalled the comparable adviser remuneration arrangements in the former product (see our response to question 9 below for further detail).

• If a MKBS member with a PSF was transferred to MKPS after the time of introducing the PSF in September 2012, the PSF continues to apply in MKPS, at the same rate (subject to a maximum of 0.44% pa), as the adviser remains linked to the member’s account.

• Since the introduction of MySuper to MKBS and MKPS on 29 November 2013, the PSF ceased to apply to new MKBS plans and to new members joining existing MKBS plans. For existing members in MKBS and MKPS after that date, the PSF is charged only on member balances held outside of the MySuper investment option (not a member’s entire account balance).

5(d) to whom the PSF was paid or received, and, if the PSF was paid to multiple recipients, the relevant percentages used;

Through approving the Member Package, the Trustee has given authority to MLC Limited to pay the PSF from investments maintained under the Investment Policy in order to remunerate various advisers who offered access to services to members, as representatives of Advice Licensees. Except as set out below, the entire amount of the PSF was paid to various Advice Licensees and it is our understanding that these Advice Licensees would then pay all or part of the PSF onto individual advisers. In most instances, there was only 1 adviser servicing members in an MKBS plan or MKPS members. In rare cases, advisers could agree to split the servicing with another adviser and split the receipt of the PSF.

When the Project SWiFT changes were implemented introducing the PSF, MLC Limited retained a portion of the PSF paid by members who did not have a linked adviser. This was reported to ASIC as a breach and is currently subject to remediation which is expected to be completed by 30 June 2017.

5(e) which group or type of members were charged the PSF and how the introduction of the PSF was communicated to them?

When the PSF was introduced through Project SWiFT it was applied to all existing members, except where the member’s asset based commission had been reduced to zero and no employer service fee was applicable. The introduction of the PSF was communicated to members through a significant event notice (SEN), comprising a personalised letter and either a MKBS or MKPS Reference Guide, depending on the member’s product. The SEN was the primary method for communicating the introduction of the PSF to existing members.

Members joining MKBS since the introduction of PSF through Project SWiFT but before the introduction of MySuper on 29 November 2013 were also charged a PSF if the MKBS plan they joined had a PSF arrangement in place when they joined. They were provided with a PDS and welcome kit which informed the member of the rate of PSF that would apply to their account, in accordance with the arrangement in place for their employer plan.

Further if a MKBS member was transferred to MKPS and had a PSF arrangement in place prior to the transfer, the PSF continued to apply in MKPS at the same rate (subject to a maximum of 0.44% pa) as the adviser remained linked to the member’s account. Members were informed through the MKPS Porting Kit provided to them when they were transferred to MKPS, which outlined their fee arrangements in MKPS (including the PSF if


ASIC.0036.0001.4604

applicable). This continues to apply to transfers from MKBS to MKPS. The Porting Kit referred members to the PDS for more information:

“The product disclosure statement contains more information on these and other fees and rebates, including how and when they are applied to your MLC MasterKey Personal Super account. The product disclosure statement is available from mlc.com.au”.

Since the introduction of MySuper to MKBS and MKPS on 29 November 2013, PSFs ceased to apply to new MKBS plans and to new members joining existing MKBS plans.

Please see our response to question 9 for information regarding the members transferred into MKBS and MKPS through Project Encompass or the TERP Transfer.

5(f) Whether members were permitted to opt-out of, or elect to reduce, the PSF? If so, how was this communicated?

MKPS members are permitted to opt-out of, or elect to reduce, the PSF. This is confirmed in the PDS. Please see our response to question 5(e) for information on how this was communicated to members.

For MKBS members any change to the PSF had to be agreed between the employer and the adviser. This is confirmed in the PDS.

5(g) If the PSF was recorded in a document or investment policy, what was the name of the document/policy?

The details of the PSF were recorded in the relevant SEN or for members who subsequently joined MKBS, in the MKBS PDS and welcome letter that was issued to them on joining MKBS.

5(h) How was the PSF charged to members (e.g. direct debit)?

The PSF is charged monthly and is recorded as a debit from the member’s account, in the records maintained by the Administrator.

5(i) Which entity was authorised to charge the PSF?

The relevant Trustee is the entity authorised to charge the PSF:

• Before the successor fund transfer on 1 July 2016, the entity authorised to charge the PSF was MLC Nominees Pty Limited, the trustee of TUSS under the Trust Deed.

• From 1 July 2016, the entity authorised to charge the PSF is NULIS Nominees (Australia) Limited, the trustee of the MLC Super Fund, under the trust deed for that fund.

5(j) Which entities or persons received the PSF or part of the PSF?

The entities or persons who received the PSF are discussed in response to question 5(d).

5(k) If there was a fee for an adviser included in the PSF: (k)(i) What was the role of the fee?

The role of the fee for an adviser included in the PSF is discussed in response to question 5(a).

k(ii) What services were included in the fee?

MKBS employer sponsors

The PSF was paid to the adviser for providing access to general services to the employer in relation to establishing and on-going support of the MKBS plan.

MKBS members

The PSF was paid to the adviser for providing access to ongoing general services to members including:

• on site visits to members;


ASIC.0036.0001.4605

• employee seminars;

• monitoring insurance arrangements for company employees;

• assisting employees to complete forms such as nomination of beneficiaries;

• ensuring tax file numbers are provided for employee members;

• assisting employees to choose the right investment options to cater to their needs; and

• assisting employees to take advantage of tax benefits through super.

MKPS members

After moving to MKPS, members continued to pay a PSF if it applied to them in MKBS. The PSF is paid to the adviser for providing MKPS members with access to on-going general advice and support services.

k(iii) Were records of the payments to advisers maintained by the trustee or administrator?

Before the successor fund transfer on 1 July 2016, the records of these payments were maintained by the Administrator of TUSS.

From 1 July 2016, the records of these payments are maintained by the Business Services Provider of the MLC Super Fund.

k(iv) How many advisers were there? Who chose them and how were they chosen?

Based on information provided to NULIS, the administration platform indicates that there were approximately 6,900 advisers (comprising practices or individuals) which provided services.

Advisers were chosen by the employer. The Trustee and the Administrator had no role in choosing advisers for employers or members. The Trustee does not have any knowledge of how the employers chose advisers. Services included in the Fees and PSF

Question 6 For each of the Fees and PSF, please explain: (a) what services were available under each fee type? (b) Who were each of the services available to?

We address each of the Fees and the PSF in turn below:


• The management/administration fees comprised the administration fee, account fee and additional management fee.

• The fees were for services provided by MLC Limited associated with managing a member’s investment in the life policy assets, supporting the member’s investment in TUSS, as well as the administration of the fund in accordance with the terms of the Administration Agreements.

• The services were provided to all members in MKBS / MKPS.

Asset based commission

• This was an on-going adviser payment for arranging the commencement of an MKBS plan and for providing access to on-going general advice and support services to members in MKBS (or in MKPS after leaving MKBS). Access to these services was provided to members in MKBS plans that had a linked adviser (all members in those plans) and continued to be available from the linked adviser when a member left the MKBS plan and moved to MKPS.


• This was an on-going adviser payment for arranging the commencement of an MKBS plan and for providing access to on-going group support services to members in MKBS. It did not apply to members in MKPS.


ASIC.0036.0001.4606

• These adviser services were provided to members in MKBS plans that had a linked adviser (all members in those plans).

Plan Service Fee

• The services available under the PSF are outlined in our response to question 5k(ii).

• These services were provided to members in MKBS plans that had a linked adviser (all members in those plans) and continued to be available from the linked adviser when the member left the MKBS plan and moved to MKPS.

Question 7

Please explain, whether, and how, the services offered under the Fees or the PSF differed?

The PSF did not alter the services made available to members. The PSF was a direct replacement of the existing asset based commission included in the administration fee and the employer service fee (if applicable), allowing for already available services to continue. Please see our response to question 5(e) for more detail.

Question 8

Please list any new services that were made immediately available under the PSF to members transferred as part of Project Encompass and the TERP Transfer? How, and when, was the availability of the new services communicated to members?

The PSF did not alter the services made available to members. Project Encompass and TERP Transfer

Question 9

What was communicated about the transfer to members transferred as part of Project Encompass and the TERP Transfer? When, and how, was that communicated? Who approved the communication and what was the process of obtaining that approval?

Project Encompass

What was communicated and when?

The Trustee sent a SEN to all members transferring as part of Project Encompass. This consisted of a personalised letter and a Reference Guide, issued in hard copy by post, to the member at their mailing address recorded in the member record administration system. The SEN covered the impacts to members, including reasons for the move, benefits of the move, information about investments, the fee structure before and after the move, fee rates applying to the member after the move, and insurance.

The Project Encompass SEN was mailed in September – October 2012.

The personalised letter also included the name and contact details of the linked adviser (where applicable) or the contact details of the call centre (where the member did not have a linked adviser). See the response to questions 15.

After the transfer to MKBS and MKPS, members impacted by Project Encompass were sent a new member welcome letter and the MKBS PDS. The letter showed the fees the member would be paying including the PSF. The welcome letter also contained details about the adviser linked to the account (where applicable) or the contact details of the call centre (where the member did not have a linked adviser). The PDS provided more general information about MKBS and MKPS and all of the fees.

Who approved the Project Encompass communications and what was the process of obtaining that approval?

The Encompass SENs were reviewed and approved by the Disclosure Governance Committee (DGC), a standing committee of the Board of the Trustee. The SENs were first presented to the DGC on 1 August 2012 and, following feedback from the Committee members, the SENS were presented to the DGC again on 23 August 2012. The DGC appointed two delegates to provide final sign-off which was provided on 4 September 2012. The process followed in the preparation of the communications for Project Encompass was known as the Public Information Release Policy (PIRP), which was the due diligence process used for the preparation and approval of customer communications.


ASIC.0036.0001.4607

TERP Transfer

The Trustee sent a SEN to all members transferring as part of TERP Transfer. This consisted of a personalised letter and a Reference Guide, issued in hard copy by post, to the member at their mailing address recorded in the member record administration system. The SEN covered the impacts to members, including reasons for the move, benefits of the move, information about investments, the fee structure before and after the move, fee rates applying to the member after the move, and insurance.

The TERP Transfer SEN was mailed in March – April 2013.

The personalised letter also included the name and contact details of the linked adviser (where applicable) or the contact details of the call centre (where the member did not have a linked adviser). See the response to question 15.

After the transfer to MKBS and MKPS, members impacted by the TERP Transfer were sent a new member welcome letter and the MKBS PDS. The letter showed the fees the member would be paying, including the PSF. The welcome letter also contained details about the adviser linked to the account (where applicable) or the contact details of the call centre (where the member did not have a linked adviser). The PDS provided more general information about MKBS and MKPS and all of the fees.

Who approved the TERP Transfer communications and what was the process of obtaining that approval?

The TERP Transfer SEN was reviewed and approved by a sub-committee of the Board of the Trustee on 5 February 2013. This is a different committee to the DGC referred to above and was convened in relation the TERP Transfer.

The process followed in the preparation of the communications for the TERP Transfer was the PIRP, which was the due diligence process used for the preparation and approval of customer communications.

Question 10

If the communication referred to at question 9 above did not include a reference to the PSF, when were members informed of the PSF? Who approved and sent the communication?

The communication referred to in the response to question 9 above did include a reference to the PSF.

Question 11

What was the total number of members transferred as part of Project Encompass and the TERP Transfer?

The total number of members transferred as part of Project Encompass was 108,061.

The total number of members transferred as part of TERP Transfer was 211,206.

Question 12

Prior to the transfer of members as part of Project Encompass and the TERP Transfer, how many members had an advisor linked to their account?

Prior to the transfer of members as part of Project Encompass, 104,943 members had an adviser linked to their account.

Prior to the transfer of members as part of TERP Transfer, 107,713 members had an adviser linked to their account.

Question 13

Prior to the transfer of members as part of Project Encompass and the TERP Transfer, how many members did not have an advisor linked to their account?

Prior to the transfer of members as part of Project Encompass, 3,118 members did not have an adviser linked to their account.

Prior to the transfer of members as part of TERP Transfer, 103,493 members did not have an adviser linked to their account. Note: the number of members impacted and the remediation to be implemented is currently the focus of an assurance review by KPMG. We have already committed to provide ASIC with a copy of KPMG’s Report, which we currently expect to be provided in the near future.


ASIC.0036.0001.4608

Question 14

How were advisers linked or appointed on behalf of members? Did the trustee or administrator have a role? Was this communicated to the trustee or administrator? If so, how?

Advisers were appointed by the employer. The Trustee and the Administrator had no role in selecting advisers for employers or members.

The employer notified the Trustee of the appointed adviser when the employer applied to establish the employer plan within TUSS. Details of the adviser were identified by the employer on the Employer Application form which was submitted to the Trustee (via the Administrator). The Administrator set up the employer plan in the member’s records administration system maintained on behalf of the Trustee. The Administrator then linked the adviser to all members who became a member of that employer plan.

At the time of implementing Project Encompass and TERP Transfer, the existing adviser details were carried over to the new member accounts created in MKBS and MKPS.

In MKBS, the employer could change the adviser linked to member accounts in the MKBS plan by instructing the Trustee. MKPS members could change the adviser linked to their account by instructing the Trustee.

Question 15

Was the appointment of the linked or appointed advisers communicated to members? If so, how and when? Who approved or sent the communication?

The appointment of advisers was communicated by the Trustee to the member at the time the member joined the employer plan via the inclusion of adviser details in the welcome kit (which included a cover letter and PDS). The welcome kit was based on a template that had been approved by the Trustee and was sent by the Administrator.

Throughout their membership, members received communications which included the adviser details in annual statements and in the “Any questions?” section of ad hoc letters. Annual statements were based on templates approved by the Trustee and sent by the Administrator. Ad hoc letters were prepared by the Administrator and a risk based approach, depending on the nature of the communication in the letter, was used to determine the appropriate level of approval within the Trustee or Administrator was determined.

The process followed in the preparation of the communications was the Trustee’s disclosure governance process (PIRP), the due diligence process used for the preparation and approval of customer communications.

See response to question 9 in relation to the PIRP.

Question 16

Were PSF amounts negotiated or agreed between the employer and adviser? If so: 16(a) What were the terms upon which they could be negotiated or agreed?

In introducing the PSF, the Trustee did not seek to alter any existing arrangements negotiated or agreed between advisers and employers with respect to the services provided or the quantum of the adviser’s remuneration.

At the time when members were transferred to MKBS and MKPS through Project Encompass and the TERP Transfer, the PSF applicable to a member was equal to the existing adviser remuneration that applied to the former product:

• For Project Encompass, the existing adviser service fee2 was negotiated or agreed between the employer and the adviser on initiation of the employer plan in the legacy corporate superannuation products. The employer and the adviser could negotiate an adviser fee structure which was either a flat dollar adviser services fee (up to $375.00 pa) or a percentage based adviser services fee (up to 0.825% of the investment account balance.

• For the TERP Transfer, the existing asset based commission applied to all members and plans in TERP. It was not possible for employers and advisers to negotiate a lower asset based commission.

For both projects, after members were transferred to MKBS, employers and advisers could negotiate a revised PSF.

2 Adviser service fee was the name used in these legacy corporate super products for the adviser remuneration agreed between the employer and the adviser.


ASIC.0036.0001.4609

The maximum amount of the PSF that could be negotiated was up to 1.5% pa of the account balance. It could be expressed as a dollar amount, as long as it did not exceed the maximum of 1.5% pa.

16(b) How, and when, were they negotiated or agreed? Who had a role in the negotiation? Did the trustee or administrator have a role?

The Trustee does not have any information about how an employer and an adviser conducted their negotiations to agree the PSF that would apply to a particular employer plan. Neither the Administrator nor the Trustee had a role in the negotiation of the level of PSF except for the Trustee setting the maximums that could be agreed.

16(c) How, and when, were the negotiated amounts communicated to the trustee or administrator?

Advisers were appointed by the employer. The Trustee and the Administrator had no role in selecting advisers for employers or members.

For a new MKBS plan, the employer notified the Trustee of the appointed adviser when the employer applied to establish the employer plan. Details of the adviser and the negotiated PSF were provided by the employer by way of an Employer Application form which was submitted to the Trustee.

For an existing MKBS plan, the employer and the adviser could renegotiate a revised PSF at any stage. Changes to the PSF could be made in subsequent instructions to the Trustee by the employer. The Administrator amended the PSF for the employer plan in the member records administration system maintained on behalf of the Trustee.

16(d) How, and when, were the negotiated amounts communicated to the member?

The communication of the PSF to members at the time of Project Encompass and the TERP Transfer is addressed at question 9 above.

For an existing MKBS plan, if the employer and the adviser renegotiated a revised PSF, the new PSF was advised to the Trustee who communicated the new PSF arrangements to members in writing. The PSF amount was also communicated to members in the “Fees paid to your adviser” section of the annual statement posted to members throughout their membership.

Question 17

When did the trustee or administrator first become aware that PSFs were being charged for members that did not have an adviser appointed to their account? How did the trustee or administrator become aware of this?

The Administrator and the Trustee first became aware of concerns about PSFs being charged to members impacted by the TERP Transfer that did not have an adviser linked to their account on or about 24 August 2015. The potential issue was identified by the Administrator. The concerns were first logged into the system for managing operational risk events on 2 September 2015 following a preliminary review of the concerns raised on or about 24 August 2015.

The concerns that PSFs were being charged for members impacted by the TERP Transfer who did not have an adviser appointed to their account were raised at an Event Panel convened on 11 September 2015. An Event Panel is a forum of relevant stakeholders convened to investigate a potential issue and to determine amongst other things whether it needs to be referred to the Breach Review Committee (BRC). The BRC is an internal committee comprising of representatives from the Trustee’s Office and the Administrator. A representative of the Trustee was present at the Event Panel.

Investigation and notification to ASIC regarding members affected by the TERP Transfer

The matter was raised at the BRC meeting on 17 September 2015. The BRC resolved that an investigation should be conducted to consider any potential breaches by the Trustee using the internal event notification processes that were already in place.

Between September and December 2015, the Event Panel conducted an investigation into whether PSFs were being charged for members impacted by the TERP Transfer and whether that constituted a breach of the Trustee’s obligations.

At the BRC meeting on 23 December 2015 the BRC determined there had been a significant and reportable breach, resulting in the Trustee’s Breach Notice dated 24 December 2015 lodged with ASIC. The Administrator also lodged the TERP PSF Breach Notice with ASIC on 24 December 2015.


ASIC.0036.0001.4610

Subsequent investigation and notification to ASIC regarding members affected by Project SWiFT and Project Encompass

The Trustee’s Breach Notice dated 24 December 2015 records that as part of rectifying the breach, it would conduct a review of the PSF to ensure that the same or similar breaches had not occurred and would include a review of another bulk intra fund transfer (Project Encompass) which used a similar approach as the TERP Transfer.

This review was expanded to include the PSF introduced through Project SWiFT to members who did not have a linked adviser.

The Event Panel thereafter conducted a review of PSFs introduced as part of Project SWiFT and as part of Project Encompass together with any other members without a linked adviser who may have joined in that period.

The Event Panel provided an update to the BRC on 13 July 2016 noting that there were members who were charged PSFs in circumstances where there was no adviser linked to their account. The BRC directed that further investigation should be conducted.

On 22 July 2016, at a meeting between ASIC, the Trustee and the Administrator, ASIC was provided with an update on the progress of the investigation into the issues regarding members affected by Project SWiFT and Project Encompass. The discussion included providing ASIC with an update on the work that was occurring to facilitate a determination, through the internal events management process, as to whether a reportable breach had arisen.

At the BRC meeting on 13 September 2016, the BRC determined there had been a significant and reportable breach, resulting in the Trustee’s Breach Notice being lodged with ASIC on 14 September 2016 regarding Project Encompass, Project SWiFT and other members with no linked adviser.

Question 18

When were PSFs turned off for members that had been transferred as part of Project Encompass and TERP Transfer?

PSFs were turned off at different times as set out below.

Breach Event 471986

Some members that had been transferred as part of Project Encompass and the TERP Transfer were affected by Breach Event reference 471986 (ASIC reference PMR 2015/8474). The PSFs were turned off for these members on 28 October 2015 as part of the remediation activities.

MKBS and MKPS members with no linked adviser

The majority of PSFs were turned off for members impacted by the TERP Transfer by 30 March 2016. PSFs were turned off for the majority of remaining MKBS and MKPS members with no linked adviser by 30 October 2016 (including those members impacted by Project Encompass, Project SWiFT and other unadvised members identified as part of the subsequent investigation discussed in question 17 above).

Following an internal validation process by the Business Services Provider, a small subset of additional members was identified. The PSFs for these members were turned off by 17 January 2017.

KPMG is also conducting a review to verify that all impacted members have been correctly identified and PSFs turned off.

MKBS and MKPS members with a linked adviser

The PSF was turned off for members with a linked adviser when their account balance became entirely invested in the MySuper investment option.

The majority of Accrued Default Amounts in MKBS and MKPS were transferred to the MySuper investment option on 2 December 2016 and any PSF arrangements in place for members impacted by this transfer were turned off at that time. The remaining Accrued Default Amounts will be transferred to the MySuper investment option, and the PSF will be turned off for members impacted by this transfer on 24 March 2017.

MKPS members could and can turn off their PSF at any time.


ASIC.0036.0001.4611

Question 19

When were PSFs turned off for all other members?

For members who did not transfer as part of Project Encompass and TERP transfer, whether a PSF was charged and subsequently turned off depended on whether the member:

• was affected by Breach Event reference 471986 (ASIC reference PMR 2015/8474),

• Did not have a linked adviser

• Did have a linked adviser and whether they became fully invested in the MySuper investment option.

The PSFs charged to these members were treated in the same manner as set out in the response to questions 18 above.

Note: the PSF has not been turned off for all members. For members who joined MKBS prior to 29 November 2013 to an MKBS plan with a PSF arrangement in place and who have a linked adviser, the PSF continues so long as they have a portion of their account balance held outside of the MySuper investment option.

Question 20

What is the reason for the difference in timing between the answers to questions 18 and 19 above?

As noted in our response to question 18 above, the first investigation and action to turn off PSFs arose in the context of the Breach Event reference 471986 (ASIC reference PMR 2015/8474).

The Trustee then became aware of PSFs being charged for members impacted by the TERP Transfer who did not have an adviser linked to their account. These members were identified and the Trustee turned off the PSF for these members.

As stated in the response to question 17 above, the Trustee conducted a review into whether other members were being charged a PSF who did not have an adviser linked to their account. These members were identified and the Trustee turned off the PSF for these members.

As stated in the response to question 18 above, following an internal validation process requested by the Trustee, a small subset of additional members was identified. The Trustee turned off the PSFs for these accounts by 17 January 2017.

For members who are paying a PSF to a linked adviser, this payment can continue so long as they have a portion of their account balance held outside of the MySuper investment option. The Trustee turns off the PSF for these members when their account becomes entirely invested in the MySuper investment option.

MKPS members can turn off their PSF at any time.

TERP PSF Breach Report dated 24 December 2015 Question 21

The TERP PSF Breach Report at page 4 refers to

“The Administrator’s incorrect assumption that because it was able to retain the asset commission when it formed part of the Management Fee that was charged through the Investment Policy prior to the transfer that it would be able to retain the equivalent PSF in respect (sic) Non Advised Members post the transfer”

a) Who made the assumption and what was it based upon? Was the assumption recorded in a document(s)? If so, what was that document?

b) Was this assumption communicated to the trustee?

The Trustee and the Administrator lodged Breach Notices with ASIC on 24 December 2015. Both Notices contain the same paragraph. Based on the Trustee’s understanding of the circumstances and the information available at the time of submitting the Breach Notice, the Trustee formed the view that the Administrator had made an incorrect assumption. The Trustee believed that the Administrator’s assumption was based on the Administrator’s consideration that MLC Limited as the issuer of the Investment Policy was entitled to retain the PSF amounts charged to Non Advised members on the basis that these members would receive access to general financial advice services via the MLC Direct Service.

During the course of the investigations referred to in our response to question 17 it became apparent that MLC Limited had retained the fees for members with no linked adviser. This led the Trustee to conclude that there


ASIC.0036.0001.4612

was an incorrect assumption made by MLC Limited as Administrator (in its record keeping function) around how the fee was to be treated. The Trustee reached this conclusion based on the information available at the time.

Question 22

Page 3 of the TERP PSF Breach Report refers to a “Management Paper”? What was the purpose of the paper? Who prepared the paper? Who considered the paper?

The purpose of the management paper was to provide information about the TERP Transfer proposal to enable the Trustee, to consider whether:

• the transferring TERP members would receive equivalent rights in MKBS and MKPS on transfer; and

• the transfer would be in the interests of transferring TERP members and in the interests of MKBS and MKPS members or any other members of TUSS.

The paper was prepared by senior management of the Administrator.

The paper was considered by a sub-committee of the Board of the Trustee at a meeting on 5 February 2013.

NAB Presentation “Update to ASIC” dated 3 November 2015 Question 23

Page 6 of the presentation entitled "Update to ASIC" on 3 November 2016, refers to two characterisations of the PSF. Please provide further details of:

23(a) How the PSF could be characterised as an "Investment Policy Alternative"? What are the relevant terms of the investment policy?

The PSF could be characterised as a fee charged by MLC Limited under clause 10.1 of the Investment Policy.

Clause 10 of the Investment Policy provides:

“10 Fees Charged by MLC

10.1 In addition to those fees included under Investment Costs and Investment Expenses in clause 9.2 and 9.3, MLC may charge fees by way of a deduction from an Investment Option or Fixed Rate fixed Term Investment, by deduction from a Member Account, or by another method agreed by MLC and the Investor.

10.2 Where the charging of a fee can be used to reduce the tax payable, MLC will make allowance for such reduction in the amount of tax charged to the Investment Option, Fixed Rate Fixed Term Investment or Member Account. If it is unclear which Investment Option, Fixed Rate Fixed Term Investment or Member Account benefits from the tax reduction, then MLC may, after considering equity between Members, apportion the tax reduction between such Investment Options, Fixed Rate Fixed Term Investment or Member Accounts, and in such manner, as MLC may reasonably decide.

10.3 MLC may increase or vary its fees within 90 days written notice to the Investor, subject to the maximum fees. The maximum fees that may be charged by MLC are set out in section 1 of Appendix 2, and in Appendix 2 in relation to some Members, and in the Member Notifications. In the event of conflict between section 1(c) of Appendix 1 and a Member Notification, section 1(c) of Appendix 1 prevails.”

23(b) How the PSF could be characterised as a "Trust Expense Alternative"? What are the relevant terms of the trust?

The PSF could be characterised as a Fund Expense payable to Advice Licensees by the Trustee within the terms of clause 8.3 of the Trust Deed.

Under clause 8.3 of the Trust Deed, the Trustee may adjust benefits and the rights of a beneficiary to take account of, among other things, any Fund Expense - being the costs and expenses of and incidental to, the establishment, operation, management, administration, investment and termination of TUSS or the terms applicable to a member (a Member Package) including tax, insurance costs and any fees or charges imposed on or paid by the Trustee.


ASIC.0036.0001.4613

PSF Events Document dated December 2015 Question 24

Paragraph 3.8 of the PSF Events Document provides:

“It is important to note that the PSF is not a fee for personal advice. There is a separate optional fee for personal advice arrangements – the Adviser Service Fee (ASF), which can be agreed between an individual member and the Plan Adviser (or with a different personal adviser, for a one-off fee only)”

Please explain the difference between the type of advice available to members under the PSF and the type of advice available to members under the Adviser Service Fee.

There is a difference between the type of advice available to members under the PSF and the advice provided to a member in exchange for an Adviser Service Fee. The PSF is a fee for offering on-going general advice and support services to members. The Adviser Service Fee is a fee that is agreed between the member and the adviser for the provision of personal financial advice. More information about these fees is explained below.

PSF

MKBS members

Services made available under the PSF include:

• on site visits to members;

• employee seminars;

• monitoring insurance arrangements for company employees;

• assisting employees to complete forms such as nomination of beneficiaries;

• ensuring tax file numbers are provided for employee members;

• assisting employees to choose the right investment options to cater to their needs; and

• assisting employees to take advantage of tax benefits through super.

MKPS members

After moving to MKPS, members continued to pay PSF if it applied to them in MKBS and their adviser remained linked to them. The PSF is paid to the adviser for offering on-going general advice and support services to members.

Adviser Service Fee

The type of advice available to members under the Adviser Service Fee is personal, tailored advice relating to the member’s individual financial situation. The advice should be detailed in the Statement of Advice provided by the member’s financial adviser. The range of services to be provided is agreed between the individual member and the adviser. The advice is available only to the member who has agreed to the fee.

Question 25


“In the case of TERP, there were a number of significant additional benefits for members”.

What were the additional benefits and how were they made available? Were members advised about the additional benefits? If yes, how and when?

The additional benefits that were made available to TERP members once they had been transferred and became members of MKBS and MKPS, include:

• Members were able to make investment choices, via access to the full range of over 40 investment options available in MKBS and MKPS. In TERP, members only had 1 or 2 investment options available to them.

• Members could obtain additional information about any of the investment options available, through the Fund Profile Tool on mlc.com.au. The investment options previously available to them in TERP were not included in this tool.

• Members obtained an overall enhanced insurance offer, including being moved to either the Trustee’s default Lifestage insurance solution which provided higher Death & Total and Permanent Disablement cover, or remaining on the TERP decreasing aged based sum insured scale, but with a 2.5% increase in


ASIC.0036.0001.4614

ASIC.0036.0001.4615

cover from the previous scale, at no extra cost. These insurance cover increases were provided automatically, to all impacted members without the need to go through any underwriting to obtain the increased cover.

• Members could obtain secure .Online access to view and manage their account (previously unavailable in TERP).

• Members could apply for more Death & Total and Permanent Disablement insurance and access Income Protection insurance for the first time (subject to individual application and underwriting).

• Members receive a tax credit back to their account each time their premium is paid. This tax credit effectively reduces the premium by up to 15%.

• Members who apply and obtain Income Protection insurance also gain access (via the insurer, MLC Limited) to the Best Doctors service, which gives members and their immediate family access to specialist doctors and medical information from around the world for the purposes of obtaining a second opinion on their condition.

• Members could access MLC Member Rewards, which provides offers on a variety of lifestyle and NAB banking products.

Members were advised about-the additional benefits through:

• the TERP Transfer SEN comprising the personalised letter and Reference Guide provided to members prior to the transfer to MKBS and MKPS;

• the M KBS PDS and welcome letter provided after their transfer;

• additional information on mlc.com.au; and

• annual statements.

Question 26


" the service delivery model was evolving at the time of implementation of the PSFs with access to transitional advice services provided by financial advisers being complemented by access to digital and phone based capability and services such as member education seminars".

What is meant by "the service delivery model was evolving at the time of implementation of the PSFs"?

The comment in the PSF Events Document was highlighting that the services and support tools available to members were changing to meet member needs. The service delivery model was evolving from being predominantly adviser-led, face to face engagements to include digital and phone based general advice services. An example of this was the development of a telephone based general advice service available to members at no additional cost and online advice tools in 2012.

Should you have any ~ueries in respect to this matter please contact Andrea Debenham, Head of Regulatory Affairs, Wealth, 01 'j1;"'f'!"st 1:1$!'

e ~·- I .. • REDACTED Conftdenbal

Brian Marriott Chief Operating Officer NULIS Nominees (A!-Jstralia) Limited


Appendix A ,... High level summary of legal and commercial structures - MKBS and MKPS

Before the introduction of the PSF

Administrative Agreements

MLC Nominees Pty Limited (Trustee)

• Administrative (e g. record keeping) services • No fee chargeable under this agreement

Risk Policy • Insured benefits • Premiums charged

Investment Policy • Investment of TUSS assets through statutory funds • MLC Limited entitled to fees per Member Packages, as

disclosed to members • Fees deducted f1 om Statutory Fund

I

MLC Limited

Statutory Funds

(Investors)

FeE

I I I

T

Shareholder fund

(Shareholders)

s -· I Investments I

'" - ,

ASIC.0036.0001.4616

Advice licensee/Adviser Remuneration paid by MLC Limited from fees retained by MLC Limited

Trust Deed

t I I I I I I I

'I Advice licensee/ ,/ Adviser

Services , / / ....._ ______ ____,

I TUSS


Member information (e.g. PDS,

signifi cant event notices) forming the

terms of the person's

membership (called a Member Package)

PDS/Application Form

-- ·l~--M_e_m_b_e_r __ ..... r_,/"/ /// •

I I

Agreement re. / / remuneration / " ,

/ ,, /

/ , /

Employer

/ / ,

/

/ .I

/

Services


After the introduction of the PSF, but before 1 July 2016

Administrative Agreements

MLC Nominees Pty Limited (Trustee)

Administrative (e.g. record keeping) services • No fee chargeab e under this agreement

Risk Policy • Insured benefits • Premiums charged

Investment Policy • Investment of TUSS assets through statutory funds • MLC Limited entitled to fees per Member Packages, as

disclosed to members • Fees deducted from Statutory Fund

I

Trust Deed

A. I

I

I

I

I

I

I

I

I

I

MLC Limited

Statutory Funds

(Investors)

Shareholder fund

(Shareholders)

ASIC.0036.0001 .4617

. I I I ---------------, 'f

Investments PSF paid by MLC Limited to advice licensee/adviser from assets attributable to MKBS/MKPS under authority

+ of the Trustee

) Advice licensee/ -' 'I Adviser

Services/~ .__ __ _

.__ __ r_u_s_s __ __.I- · - ·

Member information (e.g. PDS,

significant event notices) forming the

terms of the person's

membership (called a Member Package)

.,.,"'"' /11

I

/' , • - • ..,. 1... ___ M_e_m_b_e_r __ -1 •" ,//

Agreement re. / remuneration,'

./

./ ./

/

, ;

./ /

./ /

;

/

.__ _____ P_o_s_1_A_P_P_1_ic_a_t_io_n_F_o_r_m _____ ., .. LI ___ E_m_p_io_y_e_r _..--1r---------~:~i:_~~---------

After 1 July 2016

MLC Limited Premiums

~--------- - ------ -- ------- - -----

Risk Policy Business Service Provider Agreements

National Wealth Management

Services Limited

ASIC.0036.0001.4618

• Insured benefits • Administrative services (e.g. record keeping)

• Premiums charged • Recovers costs of a·jministration from NULIS Nominees

L--1_n_ve_s_t_m_e_n_ts __ _,r --


Fees


+ I I I I I I

Trust Deed

'======== ,," _ MLC Super Fund

·~ I I

,, ,,

'- ·-· - · - ·+

Expenses, including premiums charged and PSF payable to Advice Licensees

National Wealth Management Services Limited facilitates payments of PSF to advice licensee/adviser from assets attributable to MKBS/MKPS under authority of the Trustee

Advice licensee/ ' Adv'ser

Services,,,"" .__ ___ 11-------'

I ... --M-em~be_r __ _,r// i:

..-" ,,

Member information (e.g. PDS, significant event notices)

forming the terms of the person's

membership (called a Member

Package)

I

I

I

-·-·-·-·-·-·-'

"

Agreement re. ,. ,. remuneration,."

; ,. ; ,.

,, ,.. ;

,, ;

,. ; ,.

; ,.

; ;

;

,. ; ;

; ,.

,. ,.

' I PDS/Application Form

Employer Services l

·-----------------~

notice of direction under section 912c(1) of the …...nulis nominees (australia) limited abn: 80...

Documents