“This is a necessary step in the interests of all stakeholders to place IOOF on a sustainable course.”
The call will put pressure on the IOOF board to consider an overhaul of its board and management, including Mr Venardos, who has been chairman for nearly 10 years, and Mr Kelaher who has been in the top job since 2009 and is also a major shareholder.
The trustees of ANZ’s OnePath superannuation fund will come under pressure to act in the best interests of its members and block the proposed sale to IOOF.
ANZ agreed to sell IOOF its superannuation and investments business and four aligned dealer groups to IOOF in 2017 for $975 million.
IOOF shares plunged 35.8 per cent on the announcement and closed at $4.60, wiping $900 million off its market cap. It is now a $1.6 billion company.
ASX-listed law firm Shine Lawyers jumped on the opportunity and extended its investigation into a class action to include shareholders from March 2014 to December 5.
Show cause notice
APRA has issued a show cause notice to IOOF, threatening to overhaul the super funds’ management structure and forcing the appointment of an independent chairman and board members to trustee boards unless it receives a satisfactory answer from IOOF within 14 days.
An IOOF spokeswoman said in a statement it has been “working cooperatively with APRA” and it believes “these allegations are misconceived, and it and its executives intend to vigorously defend the proceedings.”
This is a marked change for the regulator, which has insisted legal action was not necessary to fulfil its supervisory role and, was exposed by the banking royal commission to have ignored NAB’s reports of fees for no service incidents for seven years because it thought the role was best left to the Australian Securities and Investments Commission, the conduct regulator.
But APRA was forced to act when Mr Kelaher, in a combative appearance before the royal commission, admitted that superannuation governance issues were a “matter of indifference” to him.
In the court document, APRA said Mr Kelaher, Mr Venardos and the three executives have “refused to properly acknowledge APRA’s concerns” about IOOF’s management of conflicts of interest in their superannuation business.
This is consistent with APRA’s observation in March 2016 IOOF management are “somewhat closed off [in] interactions with APRA”.
“Management are not always challenged by the board, and appear to make decisions on behalf of the board, or alternatively frame the information going to the board in a biased way,” a damning APRA file note aired in the banking royal commission said.
“IOOF operate their superannuation business within a silo and appear to be insulated from the rest of the superannuation industry with views which are not consistent with the industry or best practice.”
OnePath deal on ice
Observers say the APRA action will put on ice IOOF’s plan to acquire the jewel of the ANZ wealth deal, the OnePath superannuation business.
The trustees of OnePath superannuation were due to meet in mid-December to discuss the deal, but this is unlikely to go ahead.
“Given the significance of APRA’s action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA,” ANZ deputy chief executive Alexis George said on Friday.
ANZ’s sale of its life insurance business to Zurich will not be affected. Around 600 advisers from ANZ’s aligned dealer groups have already joined IOOF in October.
Chairman of ANZ’s trustee OnePath Custodians Victoria Weekes previously said the board was monitoring reports about IOOF before signing off on the sale.
APRA deputy chairman Helen Rowell said in a statement it was forced to take action after it was met with a “disappointing level of acceptance and responsiveness” from IOOF.
Management in doubt
Sources said it would be untenable for Mr Kelaher, Mr Venardos and the three other executives to remain in management and board roles if they were disqualified from being responsible officers of the superannuation trustees.
They said although legally they may be able to carry on in their positions, the board and the shareholders may have to force them to leave their roles if they are not found to be “fit and proper” persons to act as superannuation trustees.
Morningstar analyst Chanaka Gunasekera said if the men were disqualified it would be “hard to see” them staying on board.
The Financial Services Council said IOOF is not one of its members but generally it “welcomes additional scrutiny to ensure that members are being prioritised by their superannuation fund, whatever the structure of the business, and to ensure conflicts of interest are managed in a way that puts members first”.
However, Australian Shareholders’ Association monitor Ian Curry criticised APRA for taking an “overstated action” that is “being delivered to a wider audience”.
“It seems APRA is looking for a soft target rather than taking on the banks, AMP or others,” he said.