The A$1 billion sale of OnePath by ANZ is at risk of being stranded in a minefield of internal and external conflicts, caught between doing the right thing by members of the OnePath fund versus obtaining the best deal for shareholders of ANZ, as well as looking after the advisers that will support the fund in future.
And now there is another spanner in the works, one which ANZ’s witnesses at the Royal Commission in Melbourne yesterday were careful not to specify: the reputational risk, in that IOOF may not be the best cultural fit for OnePath after all.
ANZ is now being forced to tread warily, as Victoria Weekes, chair of OnePath Custodians, expressed so diplomatically:
“For OnePath Custodians to provide approval, and at this stage it’s just talking about in-principle approval, it will be conditional upon various matters, including being satisfied that it’s in members’ best interests for things to proceed.”
Michael Hodge, Counsel Assisting the Commissioner, questioned Weekes on some aspects of the decision by ANZ to sell its Wealth business to IOOF.
On the face of it, there are an increasingly complex number of issues emerging, not the least of which being that the sale to IOOF is beginning to look like not being in the best interests of OnePath’s members.
And even so, if the sale is done in a way that minimises capital gains exposure, it will end the payment of trailing commissions to the advisors associated with OnePath under current grandfathering arrangements that stretch back before the introduction of FOFA rules.
This raises obvious questions as to why it is in the OnePath members’ best interests to keep paying commissions to advisers when these could be stopped. But if that happens, the attractiveness of OnePath to potential buyers drops – creating a conflict around what is the best deal for ANZ’s shareholders.
The structure presently consists of a trustee, OnePath Custodians, which is the trustee of two super funds. One of those funds is OnePath Master Fund and the other is the Retirement Portfolio Service.
The Retirement Portfolio Service effectively functions like a superannuation wrap platform, allowing investments into products of a fund member’s choice. In contrast, the OnePath Master Fund contains a variety of different products, including a MySuper product and two Smart Choice Super products – one for retail investors, and another for employers.
The OnePath Master Fund deals with a related party insurer, OnePath Life, and ANZ is also selling this insurance business – although to Zurich.
One consequence of the sale to Zurich is that the OnePath Master Fund will need to unwind its investments through the life insurance policies. The extraction of the investment component parts and superannuation parts from the life insurance, or from the life insurance company, has been proving awkward.
“The preferred method for the trustee of de-linking the OnePath Master Fund from the insurance policy investments is by successor fund transfer of the OnePath Master Fund into the Retirement Portfolio Service,” Weekes said.
One of the main advantages of this method is that it has a capital gains benefit, so if you combine the redemption of those investment linked life policies with a successor fund transfer, then there’s no impact on members of the fund.
Once that successor fund transfer happens, assuming that it does, there will only be one super fund operated by OnePath Custodians, the Retirement Portfolio Service.
And OnePath Custodians will, as part of the IOOF transaction, be sold to IOOF, meeting one of the preconditions.
What’s adding further intrigue to the deal is if the successor fund transfer disturbs Future of Financial Advice grandfathering of commission arrangements – or rather the risk that will flow if grandfathering were not maintained, that was a problem. “Support from the adviser network is critical for the IOOF sale,” Weekes said.
Weekes confirmed that the present status is that OnePath Life pays commissions to advisers, and “the current working assumption is that commissions will continue to be grandfathered.”
Hodge asked: “Has the trustee considered previously why it’s in the best interests of members to continue paying commissions?”
Weekes: “No, not – not in that specific manner, no.”
And then the question of how to deal with IOOF, given their performance in this round of the round commission inquiry.
In response to Hodge’s question as to why the board [of OnePath] is yet to have a presentation from IOOF, Weekes launched into a long explanation that could be summarised as:
“It is a complex process and we need to be clear about what input we want from IOOF and how IOOF will treat OnePath and its members. … to satisfy ourselves as part of a broader package that both the [successor fund transfer] and the transaction will be in members’ best interests.”
Bernard Kellerman is Deputy Editor of Banking Day. This article was originally published in Banking Day.