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Appendix 4 - Senator Chapman's Adjournment speech, Industry Super Network's response and Questions on Notice to Industry Super Network and Mr Garry Weaven
Senator Chapman,
Adjournment speech, Industry Funds Services Pty Ltd, Senate Hansard, 24
June 2004, p. 25079
Given the propensity of the Labor Party to demand full
disclosure and transparency regarding fees and charges levied by for-profit
managed and superannuation funds, it is appropriate to raise some issues
concerning an organisation called Industry Funds Services Pty Ltd or IFS, a
company that provides funds administration services for a large number of
industry superannuation funds.
IFS’ 2002-2003 “Report to Industry Superannuation Funds”
carried an article on corporate governance. The article noted that recent
corporate failures such as Enron, WorldCom, HIH and One.Tel had:
renewed interest in the adequacy of company information to the
market, the veracity of company accounts as well as the excessive remuneration
and rewards—with little or no correlation to company performance—afforded to
directors and executives.
Then followed a paean to corporate campaigning.
This is ironic given the lack of transparency involved in
the administration of Industry Funds Services, or IFS, itself.
IFS operates numerous financial services companies and says
it manages over $20 billion in superannuation assets on behalf of the 2.8
million members of IFS’ shareholders. Other reports suggest it manages combined
assets of over $30 billion.
Despite controlling such vast amounts of money on behalf of
so many workers, nowhere does IFS Pty Ltd’s management fees, nor the cuts taken
by other parts of its group, appear to be detailed for ordinary members.
IFS’ reports to Industry Superannuation Funds are a mixture
of self-promoting puff and amorphous financial information. Its actual income
is impossible to ascertain.
Of particular concern is the amount of income derived by
Industry Funds Services Staff Equity Trust, or IFS-SET Pty Ltd, which has been
one of IFS’ key shareholders.
IFS currently has 600 shares. Most are owned by large
industry super funds, such as HESTA, C-BUS, CARE Super, Savings Australia and
the Australian Retirement Fund.
However, 12.5% of IFS has been owned by IFS-SET Pty Ltd.
IFS-SET has been in turn owned by just three people—Garry Weaven, Mavis
Robertson and Graeme Grant and is the trustee for the IFS-SET which I have been
told is a Superannuation Fund of which the major beneficiaries would be likely
to include these three people.
Garry Weaven is well known as a former ACTU Assistant
Secretary who has risen to dizzy heights with IFS.
Mavis Robertson is less well known. She was CEO of C-BUS
until 1997.
A former communist party official, she “fell into”
superannuation in the mid eighties when doing publicity for the ACTU.
Graeme Grant has been associated with a number of ACTU
financial enterprises.
One may well ask, if this is a superannuation fund, how the
12.5%—and a greater percentage in earlier years—interest in IFS Pty Ltd held by
the Staff Equity Trust fits the requirement that a superannuation fund have no
more than 5 per cent of its assets in a beneficiary’s employer’s company?
It is not known what income IFS-SET Pty Ltd has derived from
its interest in IFS.
It could quite easily run into many millions of dollars.
It is implausible that all IFS’ profits have gone to the
members of the superannuation funds that use IFS.
Yet this was the theme of a major television advertising
campaign, launched by IFS and featuring former Reserve Bank Governor, Bernie
Fraser, that went to air in the latter part of last year.
Recently, Bernie Fraser, castigated bank executives’
“scandalous” salary packages.
In the February 2004 IFS Report, Garry Weaven, IFS Executive
Chair says “no elaborate justifications of outrageous executive and director
remuneration packages.”
Maybe. Maybe not.
It might comfort members of industry superannuation funds if
they knew what income IFS-SET has derived from its extensive involvement in the
administration of their superannuation savings.
They might then be able to determine whether or not the
benefits to Mr Weaven and the very limited number of other beneficiaries of
IFS-SET have been excessive.
These issues were raised in a paper by Mr Peter Johnston,
Chief Executive Officer of the Association of Independently Owned Financial
Planners, who said “most industry funds do not fully disclose the true cost of
administration to their members and the market’s dominant player, Industry
Funds Services Pty Ltd (IFS), has relationships we find difficult to understand.”
Recent Chant West research has confirmed his claims.
He then stated:
Many choose to only disclose $1 or $1.50 per week as ‘the only
fee’ which we do not believe to be the case. A close look at the annual report
and balance sheet of many high profile funds will reveal that the cost is
substantially more, as high as 5%.
Let us hope that in fully complying with the spirit as well
as the letter of the Howard Government’s new FSR Act, industry funds will fully
disclose to members the cost of the services provided by Industry Funds
Services Pty Ltd.
Peter Johnston’s paper seems to have prompted Garry Weaven
and the Staff Equity Trust to capitulate rapidly to distribute its interest in
IFS elsewhere. According to the Financial Review of 30 January 2004:
The deal, likely to be announced soon, may quieten some of the
controversy which has swirled around IFS and its chairman, including recent
criticism by....Adelaide-based....Association of Independently Owned Financial
Planners.
Will IFS’ imminent transition from a superannuation fund
administration business to a banking model provide a pretext for restructuring
Mr Weaven and others’ interests in this lucrative business?
It is not the first time this has happened.
As I indicated earlier, IFS-SET has recently owned 12.5% of
IFS. Between 1998 and 2001 it owned 15% and before this, 20%.
It thus has already had two sell-downs of capital from which
its three principal beneficiaries presumably benefited. On these previous
occasions, though, it is not known what consideration was received, and this is
likely to be the case again.
Undoubtedly there is a lack of transparency at the moment.
Despite the “deal” to which Barrie Dunstan made reference in
that AFR article and despite detailed investigations, I have been unable to
find out what, if anything, has happened regarding IFS-SET Pty Ltd’s
shareholding in IFS Pty Ltd or to the accumulated assets in the superannuation
fund.
Certainly, IFS-SET Pty Ltd no longer appears as a
shareholder in IFS Pty Ltd in the chart at the back of IFS’ February 2004
Report.
Why has there been no public announcement as to exactly what
has happened?
There are plenty of rumours around—one version in
circulation is that the accumulated assets in Staff Equity Trust have been
rolled over to other superannuation funds and that some of these assets have
been allocated to other current or former employees of SES Pty Ltd who,
according to this version of events, for years were promised but have been
denied equitable membership of the Staff Equity Trust.
I have been told also that this recent allocation has
occurred only because of considerable pressure and potential for political
embarrassment being applied to Mr Weaven.
However, I am told further that the lion’s share of the
assets, amounting to many millions of dollars, has gone to the accounts of the
three principal beneficiaries.
The question is: have a few people profited enormously from
not-for-profit superannuation funds?
One thing is certain—a complete lack of transparency means
that no-one knows the answer—and how much this has cost industry fund members.
It will also be interesting to see whether or not Mr Weaven
and others re-emerge in the new Members Equity Bank with “scandalous” salary
packages.
Transparency is one important issue in this saga. Conflict
of interest is another.
As a shareholder of IFS-SET Pty Ltd and beneficiary of the
Staff Equity Trust, Mavis Robertson obviously had an interest in C+BUS
continuing to use Industry Funds Services Pty Ltd, while a Director of C+BUS.
Graeme Grant was recently appointed incoming fund secretary
of C+BUS, yet he is still a director of IFS, which raises similar issues.
Such issues of corporate governance and transparency need to
be addressed. Fund members need to be sure that their savings are invested on
the basis of best return and administration.
I understand that some of the above issues have been
referred to APRA.
They need to be examined fully, as does IFS’ metamorphosis
from superannuation administrator to bank.
Lately ASIC has been of the opinion that the practice of
industry superannuation funds directing members’ enquiries straight through to
IFS—which picks up the calls without identifying that it is an entirely
separate funds administration company—breaches the “holding out” provisions of
the Corporations Act.
In other words, ASIC believes that IFS is “holding out” to
be the super fund itself, rather than an administration company.
This is how perceived conflicts can arise.
The sooner ordinary workers get transparency of
administration of their industry superannuation funds the better informed and
better off they will be and more able to apply effectively the choice of fund
provisions which, despite the best attempts of the Labor Party, has at long
last been delivered to them by the Howard Government.
Response to Speech of
Senator Grant Chapman incorporated in Hansard: 1 .56 am, 24 June 2004
The Senator's speech contains many falsehoods, inaccuracies
and misleading statements. This submission seeks to deal with the more serious
of those and is made on behalf of Garry Weaven, Executive Chair, Industry Fund
Sendees Pty Ltd (IPS), Mr Sandy Grant, Managing Director of IPS and IPS Pty Ltd
itself.
The Senator's speech has been informed by at least one
commercial competitor of IPS and by the Government Members' Secretariat. The
falsehoods and inaccuracies could easily have been avoided by basic examination
of the public record, including Government records and/or by checking with the
office of IPS itself. No attempt was made to contact that office. We are of the
belief that the statement was .made deliberately with the intent of being
circulated to the press and thereby causing damage to us and to the reputation
of industry superannuation funds that are vigorous competitors with the sales
commission driven, commercially operated superannuation funds.
We therefore believe that the speech represents an abuse of
Parliamentary privilege and have publicly invited the Senator to repeat outside
of the protection of Parliamentary privilege the allegations he has made.
The Senator complains of lack of transparency in the
dealings of IPS and states that IPS says it manages over $20 billion in
superannuation assets. IPS has never said it manages over $20 billion in
superannuation assets. Its current funds management business has slightly over
$5 billion in assets under management or advice. IPS is a proprietary limited
company, owned by nine industry superannuation funds that have invested in it
for both commercial and strategic reasons. It has been a successful company on
both counts. All fees received by IPS are of course fully disclosed to both
clients and shareholders. Its fees are widely recognised as being below market
due to its lower cost structure. There is a degree of overlap between
shareholders and clients. All shareholders are represented on the Board of IPS,
which meets not less than five times per year. Company accounts and financial
statements are presented to each meeting and the company is audited annually by
PricewaterhouseCoopers. In addition, IPS publishes, on a six monthly basis, a
report that, amongst other things, fully details IPS' lines of business. This
report is circulated not. only throughout the superannuation industry but also
to media and opinion leaders. Industry superannuation funds are subject to the
full force of the law and regulation governing the superannuation industry and
have been leaders in accountability and disclosure. They are also leaders in
low cost performance and high net^benefit to members, a fact recognised by
every independent study, including the one selectively quoted by Senator Chapman.
Such funds are typically governed by trustee boards equally representing the
nation's leading employer organisations and unions or their peak councils.
Senator Chapman says, "Of particular concern is the
amount of income derived by Industry Fund Services Staff Equity Trust, or IPS
SET Pty Ltd, which has been one of IPS' key shareholders". IPS SET Pty Ltd
was in fact a single purpose company which derived no income but simply acted
as trustee for the former equity holding of IPS staff.
Senator Chapman says that he has been told that. IPS SET is
a superannuation fund of which the major beneficiaries would be likely to
include Garry Weaven, Mavis Robertson and Graeme Grant. As stated, IPS SET is
not a superannuation fund. Tins would be an extremely simple fact to verify. It
appears that many of the other alleged concerns of Senator Chapman flow from
this basic misunderstanding,, if indeed it really is a misunderstanding. Mavis Robertson
is not and never has been a beneficiary of the Staff Equity Trust as she has
never been a staff member of 1FS. Simply she has served on the trustee board of
the Trust in an unpaid capacity on behalf of the Board of IPS itself.
Senator Chapman alleges that the Staff Equity Trust had two
sell downs of capital prior to being sold out and states, "...it is not
known what consideration was received....". Throughout his speech he makes a
number of statements alleging or implying impropriety in dealing with staff
equity.
There have been no such "sell clowns" of capital.
It is true, that Weaven was die largest unitholder in the Staff Equity Trust.
This is hardly surprising given that he was die founding and sole employee over
10 years ago and that he arranged the seed funding by way of a capital
injection from a subsidiary of the then Colonial Mutual (which was subsequently
paid out from retained earnings). The company was restructured in late 1995 to
be 20% owned by each of four major industry super funds and die Staff Equity
Trust. Additional industry fund shareholders were added by injecting modest
amounts of working capital and thus proportionately diluting existing
shareholders. In 2001, two further capital injections totalling $2 million were
raised from shareholders. Weaven and Grant contributed to this raising but were
unable to participate to the full extent of their holdings and were therefore
further proportionately diluted at that time.
Prior to the final sale of the Staff Equity Trust units, no
payments have been made to staff unithoiders. All profits have been reinvested
in the business. The Staff Equity Trust sale forms part of a series of
restructurings which are intended to ultimately result in the integration of
IPS and its various businesses into Members Equity, the bank 100% owned by 43
superannuation funds. This would then create a new mutually and wholly
Australian, owned diversified financial institution. It is believed that the
industry superannuation fund shareholders have achieved a higher return for their
members from their investment in IPS than from any other investment or class of
investments. The value of IPS for the purpose of the sale was independently
determined at $15.3 million. It is estimated that the total value of IPS would
currently be somewhere in the vicinity of $20 million and the business
continues to grow quite rapidly. By agreement with APRA, IPS is valued every
three years for the purpose of establishing a value in the books of its
superannuation shareholders. The current value of Members Equity is somewhere
in excess of $300 million. W;e believe that it is currently Australia's most
rapidly growing bank, albeit from a small base.
Senator Chapman poses the question, "Will IPS' imminent
transition from a superannuation fund administration business to a banking
model provide a pretext for restructuriiig Mr Weaven. and others' interests in
this lucrative business?" IPS is not a superannuation fund administration
business. Further, it is clear from the above, much of which has been previously
placed on the public record, that it is not intended that staff will have an
interest, in the business.
Senator Chapman states that he understands "that some
of the above issues have been referred to APRA". Indeed, the entire
restructuring plan involving IPS, Development Australia Fund, AUSfund and
Members Equity was the subject of a briefing in advance to APRA initiated by
IPS. IPS has recently been assured by APRA that it has no matters of concern in
relation to IPS' activities.
Senator Chapman alleges that "ASIC has been of the
opinion that the practice of industry superannuation funds directing members'
enquiries straight through to IPS -which picks up the calls without identifying
that it is an entirely separate funds administration company — breaches the
"holding out" provisions of the Corporations Act". IPS does not
act as a superannuation fund administrator and does not pick up any calls on
behalf of superannuation funds. Mr Weaven is Chair of Superpartners Pty Ltd,
which is an administration company owned by a number of its client funds. For
many years the administration contracts between those superannuation funds and
Superpartners have required Superpartners to have a team dedicated specifically
to that superannuation fund and to identify itself to the members in the name
of that fund. Because of the changing regulatory environment, the IPS
Compliance Manager last year raised this matter with ASIC on behalf of
Superpartners and its clients, seeking clarification as to whether any change
in the practice would be required or any exemption from any regulation was
needed. On 22 September 2003, ASIC replied to Freehills in relation to this
matter in the following terms:
Thank you for your letter dated 29 August 2003 in connection
with die practice of "silent administration'' as conducted by your
clients.
The general policy of the Australian Securities and Investments
Commission ("ASIC") is not to provide legal advice in relation to how
various provisions of the Corporations Act 2001 (the "Act") should be
interpreted. However, we recognise that you would like an indication of ASIC's
current views to facilitate compliance by your clients. In that regard, ASIC
does not disagree with die conclusion that s 911C(c) of die Act is not breached
if the trustee and its administrator each hold an Australian Financial Sendees
Licence and the administrator acts on behalf of the trustee pursuant to the
terms of the administration agreement as described in your letter.
This is a further example of Senator Chapman twisting events
to suit an apparent ideological bias against IPS and the industry
superannuation fund sector.
The industry superannuation fund network has consistently
argued for maximum disclosure of fees and charges of superannuation funds and
for the outlawing of sales commissions in the selling of compulsory
superannuation as a precondition for a successful choice of fund regime. This
argument has not been successful and, as aconsequence, the practice of
financial planners (and others receiving commissions such as accountants) in
directing people into superannuation funds that pay sales commissions, rather
than into the funds which will deliver the greatest net benefit to the member
(a practice incidentally which was recently confirmed by a joint study by ASIC
and the Australian Consumers' Association), will apply to an expanded segment
of the workforce. We will continue, to argue that this is not in the interests
of working people nor the long; term interests of a successful retirement
incomes policy.
Questions on Notice to
Industry Super Network and Mr Gary Weaven arising from their appearance at the committee's
public hearing in Melbourne on 6
March 2007
The following questions will assist the Committee towards a
better understanding of the mutual structure and operations of superannuation
funds within the Industry Super Network.
- Members Equity Bank (MEB) is a significant financial institution
- Identify subsidiary companies owned by MEB and describe their business
functions and operations
- What type of services does MEB provide to industry funds that are
members of MEB?
- Name the industry superannuation funds who are members of Members Equity
Bank?
- Do industry superannuation funds in MEB hold equal interests with the
same rights? If not, what are the differences in security holdings and rights
thereto?
- In that context, the submission from Members Equity Bank says it “is
wholly owned by 40 participating industry superannuation funds (ISFs)...” and
that “ME is currently in the process of merging with Industry Funds Services
Pty Ltd (IFS).”
However, according to the ASIC database at the time the Committees’ public
hearings commenced, Industry Funds Services Pty Ltd owned all 4,243,977 shares
in Members Equity Bank Pty Ltd.
Also, according to the ASIC database, the 600 shares in Industry Funds Services
Pty Ltd are owned by what appear to be 9 industry super funds.
Can you explain what, if any, capital reconstructions or transfers have
occurred since the last filings with ASIC to expand this ownership to 40
industry super funds, or, otherwise the way in which it has been established
that ownership is by 40, rather than 9, participating funds?
What is the context of 200,000 shares being issued to Industry Funds Services
Pty Ltd by ME Bank in May 2006?
- Do the related party provisions of the Corporations Act 2001 apply to:
- MEB:
- Trustee shareholders of MEB?
- Public offer superannuation and non public offer industry funds operate
for the benefit of millions of Australians. Why shouldn’t the same standards
of disclosure and accountability that apply to public companies also apply to
industry superannuation fund trustees?
- The ASIC company registers shows that MEB is a large proprietary company
that is not a disclosing entity. Given your stated support for disclosure and transparency,
does MEB disclose remuneration of its executive officers?
- Why has MEB not converted to a public company in view of its stated
support for transparency and disclosure?
- In its provision of services to industry superannuation funds does MEB
charge commercial rates?
- It
is understood that Industry Funds Services Pty Ltd (IFS), a diversified
financial services company providing financial planning services, funds
management services and various other trustee services, was purchased by MEB
and its operations absorbed into the operations of the Bank. What was the
acquisition cost to the Bank, how was it financed, and what amount was paid to
each of the shareholder owners of IFS?
- During
Board discussions about the acquisition of, or merger of ME Bank with Industry
Funds Services Pty Ltd, how have Mr Gary Weaven, as a Director of ME Bank and
also Executive Chair of Industry Funds Services Pty Ltd and Mr Bernie Fraser as
a Director of ME Bank and also of 3 (Australian Super Pty Ltd, United Super Pty
Ltd and Australian Retirement Fund Pty Ltd) of the 9 superannuation funds which
own Industry Funds Services Pty Ltd dealt with perceived conflicts of interest?
- What
factors led, only 11 days after a story in the Australian Financial Review,
referring to controversy surrounding IFS-SET Pty Ltd, to its 75 shares,
comprising a 12.5% stake in Industry Funds Services Pty Ltd, being transferred
to a number of IFS’s existing superannuation fund shareholders?
- The
ASIC filing states that the “Total $ paid on these shares” is “$25,500” and that this figure is given for all of the transfers, be they for as few as 4
shares or for the whole 75 shares.
What was the actual consideration paid for these shares?
- In
relation to the acquisition of IFS by MEB, have the details in Section C4 of
ASIC Form 484 been corrected to show the “Total $ paid on these shares”?
- You
state in the document provided to the Committee, titled ‘Response to Speech of
Senator Grant Chapman incorporated in Hansard – 1.56 am, 24 June 2004’ that Industry superannuation funds “have been leaders in accountability and
disclosure”. How can that statement be valid when there has been no disclosure
to industry superannuation fund members of related party arrangements or
executive remuneration benefits?
- IFS
SET Pty Ltd as the trustee of the Staff Equity Trust did not derive any
income. However, what income did the staff, being beneficiaries of the Staff
Equity Trust derive through the interests held by IFS SET Pty ltd in IFS?
- In
the speech to the Senate on 24 June 2004, a number of issues were raised to
which no response was made in the document provided to the Committee. Please
provide a response to the following questions:
- What income did DIF-SET (as trustee for the Staff Equity Trust) derive
from its extensive involvement in the administration and management of industry
fund assets?
- What benefits did Mr Weaven and the limited numbers of other
beneficiaries of IFS-SET derive from its and their involvement with IFS?
- Was the transition from a “diversified financial services company which
provided financial planning services, funds management services and various
trustee services” to a banking model, a means of restructuring means Mr Weaven
and others’ interest in this lucrative business? If not, why not?
- Following the absorption of IFS within Members Equity, what are the
salary packages of Mr Weaven and other individuals, previously with IFS-SET,
and now representing Members Equity Bank?
- What
were the retirement benefits paid to the Directors who stood down following the
ARF/STA Super Fund Merger?
- Do
financial planners employed by MEB advise on all superannuation funds in the
market?
- Do
industry fund financial planners including the financial planning business
advisers of MEB, provide limited advice? Has ASIC reviewed the records and
practices of industry fund advisers where advice is sought directly or
indirectly to switch funds?
- How
does Members Equity Bank provide incentives for its sales, marketing and
adviser staff?
- Do
Members Equity Bank sales, marketing and adviser staff have sales targets?
- What
sponsorship or financial support has been given or is intended to be given to
ACTU functions and events by IFS Pty Ltd and/or ME Bank?
- What
are the level of prudential reserves of each Industry Super Fund?
- Do
the 2005 and 2006 MEB Annual Reports comply fully with the requirements of the
Corporations Act 2001?
- Balanced
funds have three objectives: moderate long-term growth of capital, moderate
income and moderate stability. Do all balanced funds have the same risk/return
profile? Is a person who is properly advised likely to get higher returns
where they direct investments in to higher growth options?
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