Appendix 2 - Answers to questions on notice

Question 1

Listed property trusts, p10

Senator WONG—I do not think my suggestion to you is that they are not an effective investment vehicle. I think what we have been discussing previously, and what there has been some public comment about, is that they do not meet some of the governance standards across a range of parameters that we expect of other types of corporate structures. Is it your view that that is not a problem or is it your view that they will catch up? I am not clear where you are coming from here.

Mr Cooper—We talked last time about the wide spectrum. The speed with which the trust structure had evolved meant that there were some fairly new issues and in some respects the regulatory system is catching up in hops, if you like, with the various developments as they occur. In its most complex form, these trust structures do put a fair bit of strain on the management of conflicts of interest, related party transactions and so on. That may be the area of concern in those multi-role, multi-vehicle type structures that we do see being produced.

Senator WONG—Did you want to add to that, Mr Rodgers?

Mr Rodgers—I am not quite sure what particular aspects are in the report. I have not seen the report. We do take an interest in the compliance with their obligations of all managed investment schemes. Before we could respond to what we are doing about the issues raised in this report I think I would need to have a look at the report. I would take that part of the question on notice.

Answer:

The ASX report 2005 Analysis of corporate governance practice disclosure – Listed trusts dated 24 October 2006 shows that compliance in the listed trust sector is quite high and only marginally lower than for companies.

Question 2

Educational programs, pp16–17

In relation to the education of investors, you announced in July among these initiatives a six-part radio series called ‘Your Money’. It is a program that runs between 15 and 20 minutes on the FIDO website and you also indicated that it was going to be played on community and local radio stations. In relation to the website, do you know how many people have listened to the series online?
Have any of the community and local radio stations played the programs thus far?
If you could, please provide information as to which radio stations have made use of the series and some estimate, or whatever figures you have got, as to the audience for those stations.
You have also released a booklet titled ‘You Can Complain’ to provide information on the most effective method of lodging a complaint about financial products and services. Have you had any feedback on that initiative from the providers of services, particularly from the banking, insurance and financial planning industries?
In your address to the Association of Superannuation Funds of Australia in September, you outlined two superannuation related education initiatives to be implemented in the next year—firstly, an online super education program for imminent school leavers and, secondly, a consumer education campaign for those who may be transferred from their existing fund without their consent. You were going to undertake research to better understand consumer behaviour to improve your communication strategies. When do you expect those programs to begin if that has not happened already?
Has there been any consumer testing of them in advance of their general release?
With regard to the fund transfer education initiative, do you have a plan as to how you will target employees who might have changed jobs and perhaps therefore are most at risk in this area?

Answer:

As at 17 December 2006, there have been 6,159 visits to the ‘Your Money’ radio series page on ASIC’s FIDO website (www.fido.gov.au) since it was published in July 2006. There have been approximately 2500 downloads of ‘Your Money’ audio files.
ASIC distributed the radio programs to 145 community and local radio stations across all states and territories in urban, regional and rural parts of Australia that expressed an interest in broadcasting the programs. ASIC is currently following up with the radio stations to find out how many have played the programs. Early indications are that most radio stations played the programs.
See ASIC’s response to 2(b).
ASIC does not have a breakdown of the audience for individual community and local radio stations. Audience research conducted in 2004 found that, in an average week, 24% of people listen to community radio each week. Community radio is particularly effective for reaching Australians living in regional and rural areas.
ASIC’s updated ‘You Can Complain’ booklet, released on 18 July 2006, is an important information resource for consumers of financial products and services about how to make an effective complaint. Feedback has been generally positive with stakeholders recognising that this is an area where consumers need assistance.
The development phase for the superannuation resource for schools will continue throughout 2007. This is to ensure a high quality product that is appealing and relevant to school students and to take account of curriculum developments in the states and territories that may take place during the year, particularly developments incorporating the National Consumer and Financial Literacy Framework. The resource is expected to be launched in early 2008.
The consumer education campaign for those who may be transferred from their existing fund without their consent will continue over the next six months.
The superannuation resource for schools will be extensively tested with the target user groups (i.e. students and teachers) to ensure that it is relevant, appealing and accessible.
ASIC intends to target employees changing jobs by making information available in the employment sections of newspapers, employment websites and other relevant media.

Question 3

Bruce Baker comments, pp21–22

CHAIRMAN—I have received several emails from our friend Mr Baker, who provided information that was the subject of some questions at our last hearing. In particular, he responded to some of Mr Cooper’s responses to the questions I asked. I can probably give you a copy of this if you want to respond in more detail. His basic argument is that shortcomings have arisen because ASIC is focusing more on form and procedure than on outcomes. Can you give a general answer to that allegation or charge by him or would you prefer to have the detail of what he said?

Mr Cooper—Let us have the detail anyway, but certainly as a general proposition we are striving to do precisely the opposite. There is no doubt that on one scan of the financial services reform provisions they are relatively prescriptive and dense and so on. But, in the way that we administer those provisions in the messages that we give out in our compliance measures in, for example, our work in shadow shopping, we are acutely aware of being at the purposive and substantive end of the spectrum rather than focusing on dotting i’s and crossing t’s. Particularly in our work on statements of advice, we were saying, ‘You can make it simple but the key elements are very straightforward; you merely have to have a reasonable basis for recommending products to your clients.’ It is all very simple; it is not a matter of ticking boxes and checklists and so on. It is somewhat difficult to eradicate that perception in the marketplace that ASIC is a bureaucracy that ticks boxes and checks up on paperwork, when in fact I really doubt whether that is what the commission or the people on the ground think.

CHAIRMAN—Another issue he raises is a claim that abuse of the word ‘independent’ by the financial planning subsidiaries of big product providers is not being properly policed. He gives an example of Financial Wisdom as one organisation that is using the term when it ought not to be.

Mr Cooper—We will certainly take that on board.

CHAIRMAN—I will give you a few copies of these.

Mr Cooper—That would be very useful.

Answer:

A key focus for ASIC in the area of financial advice is identifying inappropriate advice. This approach is evident in its work in 2005 on superannuation switching, the enforceable undertaking it accepted from AMP Financial Planning and other outcomes that are directed to stopping conduct that is causing harm to consumers and preventing people that have caused harm to consumers from doing so again.
The Corporations Act 2001 (Cth) limits the circumstances in which a person providing financial services is entitled to use the words ‘independent’, ‘impartial’ or ‘unbiased’ (section 923A). Mr Baker’s concern arose from an article published in the Financial Standard (8 September 2006) entitled ‘Financial Wisdom Strikes Up Another Alliance’. ASIC has considered statements reported in that article by an executive of Alliance Property Finance about Financial Wisdom Limited. The Corporations Act 2001 (Cth) restriction applies only to those who are carrying on a financial services business or providing financial services. It does not appear to apply to reference by a third party. In the article, Financial Wisdom Limited itself is not reported as making any claim of ‘independence’.

Question 4

Rabobank, p28

Could you take on notice whether you are currently conducting any investigation in respect of Rabobank?

Answer:

ASIC is not currently conducting an investigation into Rabobank. Generally, where a bank manager comments on a customer’s financial details in a public place, such conduct would be unlikely to breach laws administered by ASIC.

Question 5

Banking complaints – Bruce Ford, p28

...there are a number of matters a Mr Bruce Ford has referred to ASIC concerning a number of bank complaints. I know he would not mind me using his name. Again, you might take that on notice and give us an update.

Answer:

Mr Ford requested a review of several complaints made to ASIC in a letter dated 13 March 2006. A review of his concerns was undertaken on 3 April 2006. ASIC wrote to Mr Ford on 21 April 2006 itemising responses to the concerns raised by him. Specifically, Mr Ford was informed that ASIC was open to examining potential systemic misconduct upon receipt of further complaints or evidence that could support the allegation. ASIC has not received further material for consideration at this stage.

Question 6

Splitting SG default funds, p35

Senator SHERRY— My attention has been drawn to the arrangements of Catholic Superannuation and Retirement Fund and Non-Government Schools Superannuation Fund, where there is a default for the three per cent but, in the case of some schools, not the default for the other six per cent. Effectively, moneys are defaulting into two funds, with two sets of administration fees, two different types of funds and two levels of death and disability insurance, which may or may not be over or under. It seems to me to be an undesirable outcome; it should be one fund. That continues under the choice of fund regime, because it is a default arrangement. Have you examined this issue at all and whether a solution can be found?

Mr Cooper—No, we have not, Senator—not that I am aware of.

Senator SHERRY—I hate to give you more work, but could you have a look at it?

Mr Lucy—It would be wrong to just simply assume that is an ill-conceived approach, because it may well be that there would be circumstances where it might provide the best outcome.

Senator SHERRY—I would disagree with you, Mr Lucy. Why should the nine per cent be split into two funds on a default basis? Anyway, have a look at it.

Mr Lucy—We will have a look at it.

Answer:

The arrangements referred to in this question are employer arrangements regarding ‘default’ funds for the purposes of complying with the Choice of Fund Requirements contained in Part 3A of the Superannuation Guarantee Administration Act 1992 (Cth).

The Australian Taxation Office administers this Commonwealth Act.

As such, questions about such arrangements should be directed to the Australian Taxation Office.

Question 7

Mr Bradley Thrupp, p35

Senator SHERRY—In your release of Tuesday, 28 November, you banned a Queensland financial adviser, Mr Bradley Thrupp, who worked for Westpac. In 39 out of 142 instances, which is a substantial number, he failed to provide a statement of advice. I want to raise two issues with you. Firstly, did Westpac have appropriate compliance procedures given the very high number of instances of lack of supply of SOA? Secondly, have they improved their compliance, if indeed it was an issue in terms of lack of compliance? Prima facie, it seems to me that, at 39 out of 142, it should have been picked up. I could understand a couple not being picked up by the compliance people, but 39 out of 142 is very high.

Mr Lucy—We will take that on notice, Senator.

Senator SHERRY—Can you also take on notice this question: did you analyse the appropriateness of the advice with respect to the individuals for whom no statement of advice was provided?

Mr Lucy—I will take it as part of the consideration.

Answer:

Westpac became aware of the breach on 22 March 2005 as a result of its annual compliance review. Westpac then reported the breach in relation to Mr Thrupp’s advice operations to ASIC.

Prior to the identification of this breach, Westpac had engaged the services of an independent industry expert to review a number of compliance, employment and policy documents. The review resulted in recommendations being made to further improve compliance arrangements. Westpac commenced a project to address the recommendations. ASIC is monitoring progress of the implementation.

In the absence of Statements of Advice provided by Mr Thrupp, ASIC placed the onus of reviewing Mr Thrupp’s customer base on Westpac. Westpac is reviewing for appropriateness the advice given to those of Mr Thrupp’s clients who received and acted on personal advice, but did not receive a Statement of Advice. ASIC is monitoring the progress of Westpac’s customer review.

Question 8

Mr Mark David, p36

Senator SHERRY—Your press release of 22 November referred to a Mr Mark David of Ipswich, who was imprisoned for 18 months, to be released forthwith on a recognisance of $3,000 to be of good behaviour for five years. He had established a superannuation rollover fund and obtained illegal access of approximately $385,000—early release. As a follow-up to that case, will any compensation apply to the individuals for whom the money was inappropriately obtained?

Answer:

Mr David was convicted of an offence against section 1041F of the Corporations Act 2001 (Cth) and he may be liable for any losses suffered by reason of that breach.

Individuals who applied for the early and unlawful release of superannuation funds in the scheme operated by Mr David received their funds.

Question 9

NAB Planner, p36

Senator SHERRY— In a similar vein to that Westpac planner, your press release of Friday, 3 November referred to an NAB financial planner who was jailed for 8½ years for offences involving almost $6 million. It is the same issue of compliance that I raised earlier in regard to the Westpac planner. Was there a lack of or a breach of compliance in respect of NAB?

Answer:

This question relates to the prosecution of Mr Drakos, who made false statements to his clients and forged documents about a financial product in the Bahamas. Mr Drakos recommended this product and placed clients into the product even though it was not a NAB approved product. This conduct occurred between 1997 and 2001. NAB reported this matter to ASIC, suspended and subsequently terminated Mr Drakos, and compensated clients.

As an isolated fraud, this case does not appear to raise an issue with NAB’s compliance processes at the relevant time.

Question 10

Mr Giuseppe Mercorella, pp36–37

Senator SHERRY—The other issue about which, again, I was startled by the sheer size of the money involved, related to the Adelaide company director who was jailed, Mr Giuseppe ‘Joe’ Mercorella. He raised $215 million and investors were left owing $75.8 million, which was a very substantial sum of money. Regarding recovery of moneys, is it still going through some sort of bankruptcy process?

Mr Lucy—That has been the result of a very significant investigation. It has been before the court. We might take it on notice because there was a suppression order and I am not quite sure of the status of that suppression order, so it might be prudent to take that on notice.

Answer:

ASIC applied to the Federal Court for the winding up of the scheme operated by Mr Mercorella. On 8 August 2005 Mr Mercorella consented to the appointment of Colin Nicol of McGrathNicol+Partners as liquidator of the scheme and receiver and manager of his personal assets. The liquidator has conducted extensive investigations in Australia and overseas and wound up 10 companies associated with Mr Mercorella in the liquidator’s attempts to secure assets for the benefit of creditors. The liquidator is also involved in protracted litigation with a third party, which is claiming over $17 million in preference to other creditors.

Question 11

Letter from Mr Ross Cardillo of Capstone Financial Planning, p27

Senator SHERRY—I wish to include a letter from Mr Cardillo which describes the highlighting of a potentially illegal act by a dealer. I am requesting an update on the Financial Option investigation, is the investigation ongoing and, if not, why not?

Answer:

ASIC is not conducting an investigation into Financial Options Pty Limited regarding the matters about which Mr Cardillo is concerned. In making this decision, ASIC took into account the general nature of the allegations made by Mr Cardillo (notwithstanding requests by ASIC for specifics to support these generalised allegations) and the fact that the allegations appeared to relate to a commercial dispute between Mr Cardillo and the licensee.

ASIC has retained a record of the allegations made by Mr Cardillo for consideration in the event that it conducts surveillance of the activities of Financial Options Pty Ltd as a financial services licensee.

Question 12

Adjudications by FICS in relation to Westpoint

Senator SHERRY—

The case of Ms Joyce Burke has once again highlighted what I consider an inconsistency in FICS determinations. An email from FICS to Ms Burke is shown below.

The issue in this case is the determination of the amount of the claim. In this case an example FICS used stated if you invested $50,000 in Westpoint and you received $6,000 in interest per annum (12%) this would make your direct financial loss $44,000 for a 12 month period.

This is not true. If Ms Burkes $50,000 investment was placed in long term bank bonds or something of a similar safe return and this was say giving a 5% return then Ms Burkes investment after a twelve month period would be her $50,000 plus the 5% return from the investment that is $52,500. The more obvious and fairer calculation for determining a dollar value of a claim would be as follows:

$50,000 investment plus $2,500 interest that would have been payable from something comparable to long term bank bonds (5% return) minus the return from Westpoint, in this case assumed to be $6,000 (12%). That is the claim should be allowable for $46,500 not $44,000 as FICS has determined.

Has ASIC had input to the way in which FICS determines the dollar value of claims, if so why was this harsh method developed that did not take into consideration that an investor would be able to gain some return from their capital in another investment, this once again favours the Planners and not the victim. If you did not have an input into this area can you both make representation to have this changed and investgate as to why this has been adopted.

Answer:

ASIC approves schemes such as FICS under its Policy Statement 139: Approval of external complaints resolution schemes (‘PS 139’). PS 139 states that a scheme should, as a minimum, compensate a complainant for any direct loss or damage caused by a breach of any obligation owed in relation to the provision of a financial product or service. This excludes an award of punitive or exemplary damages.

The FICS Rules exclude complaints where the complainant seeks compensation by way of consequential damages: rr15(6) and 33.4(b). Consequential damages are damages that flow from a tort or a breach of contract, but do so indirectly and not directly.

The FICS Rules are therefore consistent with the guidelines set out in PS 139.

ASIC is aware of the general principles FICS has applied, and will apply, to the calculation of direct financial loss for Westpoint complaints. A Westpoint case officer makes the initial assessment of direct financial loss on a case-by-case basis to determine the amount of any claim, in part, to make sure it is within the monetary claim limit. A complainant can provide evidence of direct financial loss to FICS for consideration. The Panel will consider all documents and submissions from both parties and make its own assessment. Therefore, what constitutes direct loss and consequential damages is ultimately a matter for the FICS Panel. The issue of damages has been discussed in several FICS determinations and adjudications.

Question 13

Mr Laffey,

Senator SHERRY—

Please examine the letter below which details insurance components of arrangements for Mr G. Laffey, in particular cost of TPD and salary continuance, disclosure and default appropriateness. May I request you contact Mr Laffey to further investigate his case, his number is 07 5462 2073.

Answer:

Where a member of a superannuation fund has a complaint about the decision of the trustee of the fund, the member should first attempt to resolve the dispute with the fund. Superannuation funds are required to have internal dispute resolution processes in place for dealing with complaints from members. If the dispute is not resolved to the member’s satisfaction within 90 days, the member can then lodge a complaint with the Superannuation Complaints Tribunal (‘SCT’).

The material provided detailing Mr L’s concerns was a copy of his correspondence to his superannuation fund, which was sufficient to invoke the fund’s internal dispute resolution processes. Mr L has recourse to the SCT in the event that he finds the response received from the fund unsatisfactory.

ASIC has also contacted Mr L to discuss his concerns.

ASIC understands from the information provided that the superannuation fund has advised that it is willing to reimburse the funds debited from Mr L’s account upon receiving notification that he wishes to cancel certain default debits, which had previously been withdrawn from his superannuation contributions. Mr L has advised that the fund has confirmed receiving his notification and that it will reimburse the premiums deducted. ASIC will monitor the matter to ensure that this occurs.

Question 14

Mr Loris Pigani, p38

Senator SHERRY—

Examine attached particulars from Mr Loris Pigani and provide update on whether investigation is still in progress, if not, why not?

Where have her funds gone?

Answer:

On 30 March 2006, ASIC served Mr Dominic Cincotta with 23 court attendance notices relating to 21 charges under s178BA of the Crimes Act 1900 (obtain money by deception) and two charges under s178A of the Crimes Act 1900 (fraudulent misappropriation). The 23 charges relate to total funds of approximately $13.5 million.

The matter was first mentioned in the Downing Centre Local Court on 2 May 2006 and is set down for committal on 21 February 2007.

Mr Loris Pigani has provided ASIC with a witness statement in this matter. One of the charges currently before the court specifically relates to $245,000 of Mr Pigani’s funds provided to Mr Cincotta between 23 November 1998 and 7 November 2003.

The funds provided to Mr Cincotta by Mr Pigani, which are the subject of a criminal charge, were pooled with other peoples’ funds in the PIML account in the name of Patrice Cincotta, to which Mr Cincotta was a signatory. It appears that Mr Cincotta used the funds in a number of ways – as interest payments and repayments of capital to clients such as Mr Pigani, share trading and other personal expenditure. Many transactions were conducted in cash and could not be traced. The funds in the PIML account were dissipated by December 2003.

Question 15

Thriveliving property investment, p37

Senator SHERRY—

Examine details of proposed property investment in Tasmania. Is it a regulated product? And should it be distributed via a medical practitioner, name will be forthcoming if required. Please let my advisor Shane May know if you require the medical practitioners name.

Answer:

If conducted as set out in the promotional materials for the Roches Beach Living scheme, the rights of a participant in the Roches Beach Living scheme are not regulated as a financial product under the Corporations Act 2001 (Cth) or the Australian Securities and Investments Commission Act 2001 (Cth). The scheme would not be a managed investment scheme.

There are no restrictions under the Corporations Act 2001 (Cth) or the Australian Securities and Investments Commission Act 2001 (Cth) on the distribution of interests in the scheme by a medical practitioner.

The scheme is regulated under the Retirement Villages Act 2004 (Tas).

Question 16

Tattersall's

Senator MURRAY—

With respect to the article in the Age 28 November 2006 page 3 'Demand on Tatts top four: pay back $110 million' as Tattersall’s is now a listed public company, does ASIC have any concerns about the way this previously private company is operating? Is ASIC monitoring the Court case referred to in the article?

In the Tattersalls Annual Report the following appears:

Matters Subsequent to the End of the Financial Period

Since 30 June 2005, pursuant to its Initial Public Offer, Tattersall’s Limited issued 49,014,300 shares at $2.90, which raised an additional $142.1 million, and 50,985,700 at $3.10, which raised an additional $158.1 million. The total amount raised was $300.2 million. These funds will provide additional funding towards any requirements associated with applications for further gaming and lotteries licences, potential future acquisitions, and additional working capital.

On 7 July 2005, Tattersall’s Limited listed on the Australian Stock Exchange.

On 7 July 2005, Tattersall’s Holdings Pty Ltd sold its shareholding in Tattersall’s Limited.

Tattersall’s Holdings Pty Ltd had obtained relief from ASIC for a subsidiary owning shares in its parent entity. Except for the matters discussed above, no other matters or circumstances have arisen since 30 June 2005 that have significantly affected, or may significantly affect:

the consolidated entity’s operations in future financial years, or
the results of those operations in future financial years, or
the consolidated entity’s state of affairs in future financial years.

In light of the issues raised in the media and in court, will ASIC be considering taking any action against any of the directors or officers of the company, or revisiting its decision to provide relief for a subsidiary owning shares in its parent entity?

Answer:

The issues the subject of the court case referred to in the article in The Age are largely private matters, which occurred prior to Tattersall’s becoming a public company. ASIC is not aware of issues at present that are likely to fall within its jurisdiction in this respect.

ASIC does not have any current matters focusing on the governance of Tattersall’s Limited.

As part of the Tattersall’s restructure, ASIC provided relief in May 2005 for a three month period, which allowed the subsidiary to temporarily hold shares in the parent entity. This relief was granted on condition that the subsidiary did not exercise votes attaching to the Tattersall’s shares, nor control or influence the exercise of votes attaching to those shares. This relief is no longer effective. ASIC does not currently intend to revisit the decision that it be granted.

Question 17

Westpoint

Have you had any indication from the government that they will increase the $50,000 threshold applying to promissory notes?

Does the WA Supreme Court’s decision impede your monitoring of other risky mezzanine schemes? What other actions have you taken in this regard?

Answer:

ASIC has not been advised by the Government that it intends to increase the $50,000 threshold applying to promissory notes.

Mezzanine financing is financing that sits between equity and first ranking debt. ASIC has taken action against a number of investments with this financing structure in the property sector in recent times; the reasons for our concern have varied and have often been wider than the existence of mezzanine financing alone.

Matters where mezzanine financing was used and where ASIC has taken action recently include:

Sovereign Capital: ASIC recently cancelled this entity’s Australian financial services licence; ASIC had also previously taken stop order action against both product disclosure statements of and advertising undertaken by Sovereign, as well as intervened in court proceedings seeking to wind up their scheme;
Westpoint: ASIC is taking a number of actions in relation to this group of companies; and
Bridgecorp: ASIC intervened and obtained consent orders in relation to this debenture note issuer to seek external review of their loan books and to secure communication with noteholders.

ASIC is currently undertaking surveillances of a number of property-related investments that use a type of mezzanine financing. These surveillances may result in additional regulatory action.

Question 18

AMP Enforceable Undertaking

Given that clients who receive bad advice often think it is good, do you think that it is appropriate that a review only be conducted at the request of the client?

Answer:

The enforceable undertaking with AMP Financial Planning (‘AMPFP’) required AMPFP to send a letter to specified classes of clients to inform them of the issue about which ASIC was concerned and offer them an opportunity to have the advice they received reviewed.

In ASIC’s view, this letter was sufficiently explicit to put those clients on notice that the advice they received may not have been appropriate to them and gave clear guidance to the clients about what those clients should do if they wanted to have their advice reviewed.

Question 19

Mr David Tweed

Should listed companies do more to alert their shareholders to Mr Tweed’s activities? Should they be entitled to deny him access to their share register?

Do you see merit in the suggestion to force unsolicited offers to more clearly disclose the payment terms and tax implications of accepting the offer?

Could the law be changed to compel such offers to more closely reflect the market value of the shares?

Should companies that make unsolicited offers be compelled to hold an AFS licence?

Has ASIC identified any other means that could impede or halt Mr Tweed’s activities?

Answer:

Should listed companies do more to alert their shareholders to Mr Tweed’s activities?

Most listed companies now write to their shareholders when they become aware of such offers. ASIC supports this approach.

Should they be entitled to deny him access to their share register?

It would be difficult to construct a principle that would not also deny access designed to facilitate legitimate corporate governance and takeover activity.

Do you see merit in the suggestion to force unsolicited offers to more clearly disclose the payment terms and tax implications of accepting the offer?

There are already requirements to provide a clear and concise written statement of the market value of the shares the subject of the offer and payment terms.

As to tax implications, forcing unsolicited offers to more clearly disclose the tax implications of accepting the offer cannot be done usefully without consideration of the circumstances of the individual taxpayer; ASIC does not consider it desirable for those making such offers to be giving tax advice.

Could the law be changed to compel such offers to more closely reflect the market value of the shares?

It is difficult to envisage a principle that would not require a prospective purchaser to say what he or she is prepared to pay for the shares in question (rather than market value). The current rules require clear disclosure of the current market price.

Should companies that make unsolicited offers be compelled to hold an AFS licence?

No. This would require all companies offering buybacks to hold such a licence.

Has ASIC identified any other means that could impede or halt Mr Tweed’s activities?

Warnings creating adverse publicity about the offers made are other means that ASIC takes to impede these activities.

Question 20

ASIC report on superannuation fees and costs

Is this exercise intended to encourage a more competitive fee regime in the industry? If the names of the most expensive funds are not recorded, only the category as a whole, how will this occur? Do you expect costs to trend downwards when the next sample is taken?

Answer:

When superannuation choice was introduced, the Government asked ASIC to monitor and report on trends in superannuation fees and costs in the five years following the introduction of Super Choice legislation.

ASIC released Monitoring superannuation fees and costs: An ASIC report in November 2006.

The report is not intended to impact on competition in this industry.

The report is based upon analyses of information provided to ASIC between 1 October 2005 and 30 June 2006 on fees and costs of 1270 superannuation products offered by 191 superannuation trustees, aggregated by type of fee and type of fund.

The names of the funds are publicly available on ASIC’s FIDO website. The name of the fund can be searched to find the relevant fee information. The fee information shown is the same as that shown in the Product Disclosure Statement for the relevant product.

This is ASIC’s first report monitoring trends in superannuation fees and costs. ASIC is unable to speculate on any trends in superannuation fees.

Question 21

Superannuation fees, p30–32

Senator SHERRY—You have taken on notice some questions about notification where an individual is effectively tipped from one arrangement to another. In the context of your fee survey, if it was a master trust corporate bulk purchase, the fees identified here averaged $378 a year and then they are tipped over to a retail fund arrangement. In the context of super fees, $378 a year is a good average fee – it is at the lower end – but in some circumstances they get tipped to an average retail fund fee of $763. One of my concerns is the ability of the individual in some circumstances to exercise judgment or even know that this is going to occur to them. Are you going to do any international comparisons of average fee levels?

Mr Cooper—I must admit that I am not aware of us proposing to do that. That would be an interesting piece of work to do, but I am just thinking of our statutory mandate.

Senator SHERRY—Could you take that on notice and give it some consideration, because this work is all fine and great, but I have a general concern about general fee levels in a compulsory system. That leads on to a number of public policy issues that we do not need to talk about here. It is fine to identify what is the best value fund and that is obvious from the data, but it still begs the question of whether in fact everyone is not paying too much. I would not suggest that they are paying too little.

...

Senator SHERRY—Do you think it would be useful to do some work, by some sort of representative survey of commission, and try and identify what the real average is?

Mr Rodgers—I think that joins the earlier question on notice about what work we are planning to do here. I am not sure that we can provide you with details.

Mr Cooper—We cannot.

Mr Rodgers—I understand the point you are making that it is not a complete data set, and there is potentially other interesting data that might be collected. We will add that to the question that Jeremy took on notice.

Answer:

ASIC is considering whether there is merit in undertaking some work on these issues.

Question 22

REST, p35

Senator SHERRY—I would certainly assert that it is an undesirable practice. It is not widespread. I had an example of a shop in the retail industry, again bound by the three per cent into REST, with a smart employer paying the six per cent into another fund, master trust commission based selling. It can happen and it does happen. It seems to me that it needs some examination. You may or may not conclude that it is inappropriate, but I do think it is inappropriate. In a default situation, why default into two funds? Could you have a look at it?

Answer:

The Australian Taxation Office administers this Commonwealth Act.

As such, questions about such arrangements should be directed to the Australian Taxation Office.

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