More questions over ASIC’s super fund insiders

Mr Jones was seconded to work with ASIC’s Regulatory Policy Branch during the time when the lobby group for retail funds – of which MLC is itself a member – was requesting special exemptions from the regulator.

As revealed earlier this week, the lobby group IFSA (Investment and Financial Services Association, since renamed Financial Services Council) was involved in intimate negotiations with the regulator and the exemptions were duly rewarded by ASIC the following year. ASIC released a response to the article.

Although the petitions of independent voices such as the Institute of Actuaries were ignored – as were indeed even warnings from ASIC’s own lawyers and policy advisors that the superannuation calculators in question had little or no educational value – IFSA got everything it wanted.

According to internal memos obtained by BusinessDay, Mr Jones, although still on MLC’s payroll at the time, was intimately involved in the deliberations over the exemptions. In short, he was a key member of a team which was changing the laws to suit the vested interests of Australia’s biggest money managers.

It should be said that there is no allegation of impropriety here against Grant Jones. Insiders say Jones clearly advised the director of the Regulatory Policy division, Mark Adams, that he had a conflict of interest.

You could even say that Jones should be lionised by his peers for his role in formulating national policy. The changes to the law have probably saved the retail funds a lot of money – and effectively allowed them to offer their customers inappropriate advice by not incorporating fees in their online calculators

At the time, the Super Choice reforms were soon to take effect. IFSA wanted its members to provide online super calculators as part of their marketing armoury. These calculators are often the first port of call as potential investors go online to compare product offerings between different fund managers. The rub was that IFSA did not want the calculators to disclose fees because investors would then quickly find that industry funds offered much lower fees than their retail counterparts.

The effect on investment returns was dramatic. In order to hide the fees then, the funds would need an exemption from having to provide ‘reasonable advice’. The advice could hardly be deemed reasonable if the fees were not included.

Since 2007, the big funds managers and their wrap platforms have soaked up almost half of the average Australian’s investment returns in fees.

The public interest issue in this story is not that Grant Jones, an outsider whose employer had a vested interest, had been seconded to ASIC. It is primarily one of disclosure and process on the part of the regulator.

There appears to be no proper public disclosure that ASIC hosts secondees from the businesses which it regulates.

There is certainly no public disclosure that a secondee from financial services behemoth MLC had an intimate role in shaping policy which was to benefit MLC.

A search of the regulator’s disclosures, on its website and on Google, failed to unearth any protocols or procedures to govern conflicts and confidentiality.

ASIC was asked about secondees earlier in the week:

Question: “I also looked through the 2005 annual report for information regarding secondments to ASIC. The annual report mentions that ASIC hosted some secondees from the Indonesian, Vanuatu and Fiji securities regulators. There is no mention of any other secondees at ASIC. Does that mean that there were no other secondees at ASIC during the 2004-5 financial year?

Answer: No. ASIC had several secondees during that period, including the secondees from Fiji, Vanuatu and Indonesia.”

Later, in a statement in response to this article, ASIC said the following: “ASIC, in common with practice of regulators around the world, seconds industry and other experts to utilise their skill and augment its knowledge and expertise. The secondments are subject to robust conflict management procedures,” it said in a statement.

A spokeswoman for MLC confirmed an employee was seconded to ASIC on a full time basis almost 10 years ago for a period of approximately six months to assist on various policy development issues.

However the employee “did not have any management responsibility or decision-making authority”, the MLC spokeswoman said in a statement.

At no time the employee had “primary responsibility” for drafting ASIC’s regulations in relation to generic online calculators in 2004, she said.

“He was not carrying out the normal responsibilities of his usual MLC role during the secondment. He did not act improperly either in accepting or performing the functions of his seconded role,” the spokeswoman said.

She declined to name the employee. Mr Jones declined to be interview.

An ASIC memo thanked Mr Jones for his secondment: “In his place, we’re getting Dion Whitehead for the next 6 months, also from the MLC.  Dion has expertise in managed investments, so it will be great to have him on board.  Dion joins the Sydney team on the Tuesday after Easter’’.

“Please make him very welcome.”