Slater and Gordon has filed a class action against Westpac subsidiaries on behalf of superannuation members. The claim was filed against BT Funds Management and Westpac Life Insurance Services last Friday.
It is the third superannuation class action Slater and Gordon has filed since the release of the final report of the Hayne Royal Commission. The others are claims against AMP Super and Colonial First State.
The latest claim is that BT short-changed BT Super for Life members by investing the cash-only option through Westpac Life, allowing it to earn fees while providing no valuable service.
According to the claim, Westpac Life was given complete discretion about the interest rates it would pass on to members, and at times kept almost half of the returns on members’ money for itself.
Slater & Gordon claims that in one year Westpac Life earned 2.5 per cent but credited only 1.3 per cent to members.
BT is alleged to have breached its duty to act in the best interest of its members.
Slater and Gordon special counsel Nathan Rapoport said in a statement: “We believe Westpac Life provided no service that could justify it retaining such a large part of the returns generated from members’ money, and we want the difference paid back to members.”
The case is being funded by litigation funder Therium Capital Management
Westpac said in a statement that BT and Westpac Life would be defending the claim.
The claim against Colonial is that its super fund breached the trust of its members by investing their savings with the parent bank, Commonwealth Bank, despite that fact that the bank did not offer the best interest rates.
The claim against AMP is that it paid too much to related entities for administration services, resulting in excessive fees on members’ super accounts. A further claim is that where members’ funds were held in cash-only options members received interest rates that were lower that what a reasonable and diligent trustee could have obtained in the open market.
The background to these claims is the Royal Commission’s findings on vertical integration in financial services. Hayne’s final report says vertical integration promises the virtue of efficiency, the benefits of which are passed on to consumers in the form of lower costs and greater access to financial advice. Customers may also enjoy the simplicity of dealing with just one institution.
“However, the internal efficiency pf the model has not necessarily produced better outcomes for customers. What it has done is create a bias towards promoting the owner’s products above others, even where they may not be ideal for the consumer.”
Hayne says the 2012 FOFA reforms addressed some of the failures that emerged during the GFC by imposing a best interests obligation on financial advisers, banning conflicted remuneration and making fees more transparent.
However, he casts doubt on whether financial institutions can managing conflicts of interest in vertically integrated businesses.