Slater and Gordon brought the class action on behalf of 500,000 Australians who were charged excessive superannuation fees to fund ongoing commissions paid by Colonial First State to financial advisers.
The fees were charged to members of the Colonial First State FirstChoice Superannuation Trust in the period 1 July 2013 to 1 June 2020.
“Following a confidential court-ordered mediation on 16 June 2023, CFSIL and the applicants have agreed to settle the class action. The settlement is subject to court approval,” Colonial First State said in a statement.
“In agreeing to resolve the litigation, CFSIL continues to deny the allegations and makes no admissions of liability or wrongdoing.”
The Slater and Gordon class action alleged that Colonial, a subsidiary of the Commonwealth Bank of Australia (CBA), did not act in the best interests of thousands of customers by continuing to charge existing members high fees under the commission arrangements. This is despite legislation being introduced that banned the charging of commissions on new super accounts from 2013 onwards.
The law firm further alleged that Colonial had the power at the time to reduce the fees or transfer existing members to identical products with lower fees and where commissions were not paid, but this did not happen until 2019 and 2020.
Slater and Gordon added the settlement is the highest it has ever achieved in a group proceeding.
Lead applicant Marcel Krieger, who joined Colonial’s FirstChoice Personal Super in 2010 during a branch visit to the Commonwealth Bank, welcomed the outcome.
“Prior to this class action, I didn’t know that from mid-2013 I was paying higher fees than members who joined the same product after that time. I would not have stayed in the higher fee product if I had been told that almost identical but lower fee options were available,” Mr Krieger said.
Slater and Gordon class actions practice group leader Kirsten Morrison said many Australians would be eligible for a share of the settlement, which would be returned to their superannuation accounts.
“This is a great outcome for the many thousands of customers who put their faith in Colonial to look after their financial interests but were disadvantaged by the arrangements in place with financial advisers that were not in customers’ best interests,” Ms Morrison said.
The in principle settlement is still subject to court approval, however if approved, eligible group members will each recover a share of the agreed settlement sum of $100 million, after accounting for any deductions that may be approved by the court, such as legal fees and any commission to be paid to the funder of the class action.
CFSIL added that it expects that a notification of the in principle settlement will be sent to eligible group members in August 2023.
Ms Morrison said it was likely that some members of the class who had financial advisers linked to their accounts would have to register to participate in the settlement and confirm they did not receive ongoing financial advice under the commission arrangements. But she said no action needed to be taken until further notice.
“Settlement funds will not be distributed until the settlement has been approved by the Federal Court, and that process will take some months,” she said.
“We will be contacting group members with more information about the settlement and the steps required to register for the distribution.”
The class action was funded by litigation funder Augusta Ventures Limited.
Slater and Gordon launched the class action in 2019 as part of its Get Your Super Back campaign.
This is the second settlement reached under the campaign, with the firm previously obtaining a $29.5 million settlement from BT Super.
The banking royal commission revealed that since 2013, Colonial paid financial advisers or the licensees they worked for over $400 million in commissions that were funded by charging higher fees to superannuation members. Many of the advisers worked for the Commonwealth Bank group, which made significant profits from retaining these commissions.
At the time, Slater and Gordon special counsel Nathan Rapoport said the Australian government banned commissions to financial advisers for new members through its Future of Financial Advice reforms because it was clear they were not in members’ best interests.
“Ever since, Colonial continued to pay commissions with respect to existing members under what became known as the ‘grandfathering exception’, and because of this, it continued charging those members higher fees,” Mr Rapoport said.
“The Hayne report found there was no justification for continuing to pay commissions to financial advisers. We agree. Paying these commissions – and as a result charging members higher fees – ripped hundreds of millions of dollars out of members’ retirement savings to profit the financial advisers or the licensees they worked for who were not required to provide any services in exchange.
“We allege that Colonial should have stopped paying the commissions for all its members and reduced their fees accordingly, as it properly did for new members.
“At the royal commission, Colonial accepted that some of its conduct fell below community standards and expectations. This is an understatement. We believe Colonial’s conduct was in breach of the law and it should be held to account and required to compensate its members.”
Slater and Gordon is also pursuing Commonwealth Bank and Colonial First State in a separate group proceeding for breaching the trust of superannuation fund members by investing members’ retirement savings with its parent bank, even though the bank did not offer the best interest rates.
