National Australia Bank’s wealth management arm, MLC, might be on the hook for another round of compensation payments after it failed to clearly communicate a ‘plan service fee’ (PSF) could simply be switched off if customers requested.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry raised the spectre of a third round of payments – following the more than $100 million MLC has already paid in two previous rounds – on the second day of hearings looking into the $2.6 trillion superannuation sector.
Enduring a second day of questioning from counsel assisting Michael Hodge, Paul Carter, the former executive general manager of wealth products at NAB, was asked why the bank refunded the PSF to MasterKey Personal Super members two weeks ago – at a cost totalling $67 million – but did not extend payments to MasterKey Business Super members.
Hodge questioned Carter in detail about why it took him and his team multiple years to extend compensation to clients who had paid the PSF to cover general advice but had no advisers linked to their account – a breach that began in 2012.
Carter was repeatedly unable to recall key events.
Hodge asked whether NAB, having discovered the breach, tried to come up with some other pretext to continue charging the fee – such as stating that it covered the provision of general advice services – and whether this was one reason for the delay.
Documents tendered showed MLC had considered an option in which customers would have to opt-in for the initial round of compensation, which Carter admitted would probably have led to a lower total payout. Ultimately, the decision was made to pay the full amount of $34.7 million to customers who had paid the fee despite having no advisers linked to their accounts.
Hodge asked: “Did you ever think to yourself this is the wrong way to think about the situation, to be trying to identify services that we can say justify keeping the plan services fees?”
“No,” Carter replied.
When asked whether the investigation was simply to try to find ways to justify keeping the money, Carter first replied “yes”, then clarified his response.
“No, actually, I’ll restate my [response],” Carter told the inquiry. “What we were trying to understand…is we were trying to understand what actually was the nature of…the issue, make sure that we considered this from every…all factors were considered to come to a conclusion, Mr Hodge.”
Carter said he wished in retrospect the investigation had moved more quickly, but was glad NAB came to the right decision in the end, which was to refund all the money.
Hodge then questioned whether the PSF in its entirety was, in fact, a fee for no service – regardless of whether or not an adviser was linked to the account – given fund members could phone up and turn it off at any time.
Hodge also questioned why, in dealing with ASIC in October 2016 before it released a report about the ongoing fee-for-no-service scandal, NAB had requested the words stating that members did not receive general advice services they had paid for be deleted, with the explanation being that some services were provided.
Hodge continued, questioning why NAB had not revealed the full extent of compensation soon to be offered to customers.
Carter said he didn’t know what NAB wealth boss Andrew Hagger had discussed in a private conversation with ASIC commissioner Greg Tanzer.
Hodge said: “I’m just struggling to understand the rationale in saying this is different from a fees-for-no-service issue.”
“Many of these members would have been receiving general advice services,” Carter replied.
Hodge fired back: “They would have been receiving them anyway regardless of whether they were paying the PSF or not.”
“And that is why it should have been refunded,” Carter replied.
Near the end of his questioning, Hodge turned to why it had taken almost two years for NAB to decide to refund all PSFs deducted from MasterKey Personal members in a payout of $67 million two weeks ago.
He asked if this was something that had been under consideration when Carter was the executive general manager, to which Carter replied, “not that I’m aware”.
Hodge then asked if MasterKey Business members would also have the fee refunded, to which Carter replied he wasn’t aware of that either.
“Can you see any difference between the position of a [MasterKey Business] member and [MasterKey Personal] member if the justification for needing to refund the money is that product disclosure statements did not explain that a member could simply turn off the PSFs?”
Carter said he had left the company 18 months prior and wasn’t involved in that part of the investigation.