Banking royal commission live: superannuation hearings

Royal commissioner rules NAB’s discussions with the regulator can be made public.

Commissioner Kenneth Hayne at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Picture: David Geraghty.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has entered its fifth round, with hearings in Melbourne examining the superannuation industry.

4.20pm: Hearing adjourned

Commissioner Hayne has called an end to proceedings for today.

The approach of NAB and its subsidiaries to the charging of fees when no advice had been provided, and its subsequent decisions about compensating super fund members were again the centrepiece of today’s hearing.

Here’s what we learnt:

• NAB’s ability to charge the so-called adviser contribution fee was directly questioned by senior counsel assisting Michael Hodge QC. At face value, the adviser contribution fee appears very similar to the plan service fee, which has been refunded and found to be lacking in “service”.

• NAB’s negotiations with the regulator were laid bare by the royal commissioner, despite the bank’s best efforts to conceal them behind legal privilege.

• NAB was again questioned as to why it took two years to refund some wrongly-charged fees. fees. As Mr Hodge put it to fund trustee Ms Smith: “As the trustee, you have deducted money from members accounts in order to pay for a service that has not been provided to the members and now this related wealth entity is trying to find a reason to keep the money.”

• NAB’s discussions about finding alternative justifications for a super fee were not limited to junior employees

• The appearance of Australian Super’s Ian Silk, who was expected to take the witness stand today, has been delayed due to the examination of NAB going well over expected time.

• Outside the hearings, it’s been revealed that total compensation to be paid out to customers of AMP, ANZ, National Australia Bank, Westpac and StatePlus who were charged fees despite not receiving any service could exceed $850 million, according to the corporate watchdog.

Thanks for following proceedings with us today. We’ll be back covering the royal commission at 9.30am tomorrow when the hearings resume.

4.15pm: The wrong problem, or just ‘a bit slow’?

The letter, which can been seen to the public attending the hearing, but which cannot be published here for legal reasons, is from NAB’s management to ASIC.

The letter says: “Despite our careful planning and intent, we poorly executed some specific aspects resulting in the two events … We were not clear to members on the nature and how plan service fees would apply to members who did not have a named financial planner linked to their account.”

Mr Hodge puts it to Ms Smith: “I’m trying to understand if the authors of this letter have identified the wrong problem. Then was it not an issue for you, as the trustee, that they were, therefore, not fixing the right thing?”

“This is a letter written to ASIC signed by you, suggesting that the problem was not that the trustee charged money when it should not have charged it, but that the trustee was not clear to members as to how the plan service fees work,” Mr Hodge says.

In response, Ms Smith says that in her mind, at this point in time, she was in discussions with ASIC about other members in a different product that did not have advisers linked to their account.

Mr Hodge asks whether Ms Smith knew the letter was about the potential legal liability of NAB’s trustee NULIS. “Was that something that when you signed this letter you were curious about?” he asks.

Ms Smith says: “There has never been a question that I’ve seen, or a matter where I’ve seen the organisation not look to put customers back in the position they should have been had the error not been made.”

She continues: “My experience of the culture of the organisation was [that] we might be a bit slow at it, but we will do the right thing by our customers.”

“It has taken us too long to get to the remediation point in two instances.”

Mr Hodge asks: “Why do you think it has taken so long?”

“I don’t really know the answer to that,” replies Ms Smith.

3.59pm: ASIC negotiations made public

Commissioner Hayne has, after a lengthy oration, come down on the side of airing and publicly examining documents revealing NAB’s negotiations with ASIC.

NAB’s legal counsel, Neil Young QC, has for a second time today, battled with Commissioner Hayne over the publication of certain documents relating to potential enforcement by ASIC.

The documents detail particularly revealing information about what NAB was offering ASIC when the regulator was concerned with NAB’s behaviour. Commissioner Hayne is concerned about the need to carry out justice in public. (Disclosure: the media also has a keen interest in this happening).

“What is the dispute?” Mr Hayne begs. “You have reported in accordance with law. There are or there are not, according to a determination of a court letter, legal consequences which may or may not attach to what has been reported. What is the dispute that is, you say, the subject of debate with ASIC?” he asks

Mr Young replies: “ASIC was conducting an ongoing investigation as to the way in which that significant potential breach could be addressed and remediated, in such a way that ASIC would take no further action in respect of that notified breach. It’s the same context that arises in respect of that notified breach. There is discussion with ASIC of potential enforcement action, and a range of solutions or remediation are the subject of without-prejudice discussions with ASIC, including such thing as enforceable undertakings.”

Mr Young says there is “a wider public interest in preserving these communications, not just for this case, but for other cases”.

“It’s our submissions that, by all means, the commission has this document. It can use it. But the potential detriment that would flow to my client [NAB] if this were to be published at large and the potential detriment to the public interest in ensuring that negotiations and discussions of this kind are conducted frankly and fairly with the ongoing benefit of without prejudice protections,” Mr Young says.

Mr Hayne is unimpressed by the arguments and asks Mr Young to explicitly state what the exact impact on the bank and the public interest would be if the public got to see these documents.

“The detriment to our client is that there would be unnecessary public revelation of the various concessions and compromises that my client was prepared to put forward in July 2016 in the context of this issue that had arisen with ASIC,” Mr Young says.

“The damage to the wider public interest is that the ability of organisations, ASIC and corporations, to engage in discussions with a view to agreeing upon appropriate enforcement steps may be hindered if parties can’t engage in those negotiations with the benefit of without prejudice privilege,” Mr Young says.

Mr Hayne then restates the arguments put to him by Mr Young, in a delivery too long to be repeated here.

But, “in the circumstances, I think there should be no non-publication direction,” he concludes.

3.35pm: Two-year delay

Mr Hodge is now asking why it took so long for NAB to compensate customers. It found issues in 2015 and didn’t move to repay customers for almost two years after that.

In 2015, NAB was informed that it had been deducting plan service fees from members’ accounts, even where there was no linked advisers.

“Would it seem obvious that in those circumstances those members would need to be refunded. Do you agree?” Mr Hodge asks.

Ms Smith says: “I would agree that where there’s no adviser, no service can be provided and a fee shouldn’t be charged.”

Mr Hodge says the trustee was told about this in 2015, but it wasn’t until October 2016 that a final decision was made about the remediation.

Ms Smith says the only reason for the delay was that the bank was trying to discover if other customers had been affected.

“As the trustee, you have deducted money from members accounts in order to pay for a service that has not been provided to the members and now this related wealth entity is trying to find a reason to keep the money,” Mr Hodge says.

“The process seems to have been to look at whether retaining the plan service fees could be justified on the basis that MLC Nominees or MLC Direct had provided some sort of general advice services to the members, or made available general advice services,” Mr Hodge says.

Ms Smith says NAB receiving conflicting legal advice.

3.21pm: No service, but nothing to consider

Ms Smith has now revealed the bank does not appear to be all that concerned with getting on the front foot and seeing if the “adviser contribution fee” — which, as we’ve heard, is considered to be a commission — should be refunded.

How does NAB ensure services are being provided for the fees being charged, Mr Hodge asks.

The employer, who chooses the funds, should be responsible, Ms Smith says.

“There is a series of controls, but really the primary control would be between the employer and the plan advice,” Ms Smith says.

“All right”, says Mr Hodge. What if the member didn’t think they were having adequate services provided?

If they didn’t like the service, Ms Smith says, the customer could call up and cancel the fee. Mr Hodge asks how would they know to do so.

They return to the PDS.

Mr Hodge asks: Can you think of a reason why the adviser contribution fee ought not to be refunded to the member, if it is a fee for service and there is no adviser linked to the account?

“No I cannot,” Ms Smith says.

“But that’s not something you’ve had to consider before now?” Mr Hodge asks.

“It hasn’t been something that management has raised with you?”

Ms Smith says no, it is not.

3.03pm: Two fees, one refund

After close to two days of testimony, NAB’s newest witness Ms Smith admits misleading customers about being able to turn off the useless plan service fee.

She’s telling the commission that she “thought long and hard about whether or not it is misleading”, in relation to NAB’s habit of not telling customers they could ring up and cancel the so-called plan service fee, which would result in absolutely no difference to the customer. Anyone could access the basic general advice on offer, regardless of whether they were paying the fee or not.

“In hindsight, it (the product disclosure statement) should have said you can turn it off,” she says.

This prompts Mr Hodge to bring up another product disclosure statement to help Ms Smith turn her mind to whether it should have been disclosed in the PDS for a different product. NAB is refunding members of its “MAPS” product, but not for savers in its “MKBS” product.

It appears Mr Hodge can’t understand why some customers get a refund and others don’t.

2.55pm: Fees vs commissions

Mr Hodge is back asking about why the plan service fee is a “fee” whereas the adviser contribution fee is considered a “commission”. Remember, the precise definition of these fees and commissions could end up costing NAB dearly in future compensation over charging customers fees where there was little or no service provided.

Mr Hodge proposes that the plan service fee is: “A fee paid to the adviser in respect of general advice services?”.

“Yes,” says Ms Smith.

“What did you think the adviser contribution fee was?” Mr Hodge asks. “A commission that would stop with FoFA,” Ms Smith says.

“The plan service fee,” Mr Hodge asks, is “understood to be a service that would be agreed to be provided by the advisers?”

“Yes.”.

“And if that service that had been agreed wasn’t provided, the fee wouldn’t be charged and wouldn’t be paid to the adviser?” proposes Mr Hodge. Again the answer is yes.

“And you’re anticipating that, for example, MLC would provide some different service and then claim the fee for itself?” Hodge asks. Ms Smith says: “No”.

So Hodge tries another way.

“You know that in terms of the amounts that have been agreed to be remediated by NAB to members of the various funds of which you’ve been a trustee, that there has not been an agreement or commitment to remediate for adviser contribution fees” he says. “No there hasn’t,” Ms Smith says.

“As far as you can tell, it hasn’t been raised with you?” Mr Hodge asks. “No.”

Nicole Smith, non-executive director of NAB’s superannuation trustee NULIS, appearing at the financial services royal commission in Melbourne. Picture: Supplied

2.42pm: One eye on FoFA?

Mr Hodge is focusing on why NAB was reviewing its fees and commissions for super customers, something which just happened to be taking place as the government’s Future of Financial Advice Laws were looming.

“Were there any times when you had a concern about whether the office of the trustee was being adequately resourced?” asks Mr Hodge.

Ms Smith says: “Not that I can recall. But I’m sure that there are times where we’ve discussed resources during the last five years.”

In April 2012, there was a board meeting with the directors of all of NAB’s trustee licensees. They discussed proposed changes to adviser payments and the so-called Project Swift program.

“Do you recall the reason — the motivation for (project) Swift was connected with the introduction of FoFA and MySuper?” asks Mr Hodge.

Ms Smith says it was about bringing transparency to fees and allowing the member to have control over their fees. She agrees the FoFA laws played a part in the review, but said it was not a “primary” consideration for the program.

“Do you recall that at the time that you were considering the Swift proposal, you knew FoFA was imminent?” asks Mr Hodge. Ms Smith says she wasn’t aware at the time of the proposal, but looking back understands that the MySuper proposals were coming.

“Under FoFA it was no longer possible to pay commissions,” Mr Hodge says. “Part of the purpose of Swift was to remove commissions and replace them with explicit fees.”

2.32pm: A ‘probably poor’ record

Ms Smith said NAB had a “probably poor” record of complying with legal requirements to notify ASIC of breaches, “up until around 2015”. PwC was called in to review the “breach review committee process” and Ms Smith says the bank has now improved.

“There has only been very few amount of breach reviews committee notices that have gone past the 10 day requirement by about — I believe up to one to two days,” Ms Smith said. Late breach notices have now decreased, she says.

An email chain showed 35 per cent members of NAB’s TERM product had less than $1000 in their accounts. Ms Smith says she was unaware of the fact.

However, it appears NAB was charging customers fees for services which it did not police its advisers into providing.

The email said “MLC Limited elected not to police the requirements of its commission schedule largely because no sane person would expect plan advisers to service such small amount holders in such a basis product.”

Ms Smith says there was a breach report about the issue.

2.22pm: Carter steps down

Nicole Smith, a non-executive director of NAB’s superannuation trustee NULIS, has replaced former super boss Paul Carter in the witness chair.

Ms Smith has been a director of NULIS since 2009 and the chair since 2013. She was also a director of other trustees within the NAB group since 2006.

She describes herself as being “generally quiet by nature” after Commissioner Kenneth Hayne asked her to raise her voice.

Counsel assisting Michael Hodge, QC, is continuing to ask about NAB’s habit of charging customers the plan service fee, in which it charged customers for the ability to access basic services, whether or not the customer actually needed or used the services.

2.10pm: Compensation bill mounts

Michael Roddan reports that the total compensation to be paid out to customers of AMP, ANZ, NAB, Westpac and StatePlus who were charged fees despite not receiving any service could exceed $850 million, according to corporate watchdog ASIC.

The regulator today said these financial institutions have made provisions for future remediation payments in order to pay back customers who were charged fees but received no service in return.

It comes on top of compensation payments or offers by other wealth managers or banks exceeding $480 million.

1.30pm: Hearing in recess

Commissioner Hayne has called a recess and the hearing will now break for lunch. The hearing will resume at 2.15pm

1.20pm: Fully transparent?

The final report by ASIC was released on October 27. In it, the compensation numbers from some of the banks, including CBA, had increased since the draft report that ASIC had sent to NAB in the days prior.

A NULIS meeting the day before ASIC’s report was published had established the compensation that NAB would have to pay.

Mr Hodge asks if anyone had been in touch with ASIC on October 26 to say NAB now had the final compensation numbers. Mr Carter says no.

Mr Hodge puts it to Mr Carter that if NAB was being fully transparent it would have told ASIC that it expected to approve, between October 24 and 26th an extra $34 million in compensation.

Mr Carter again relies on the phone call that Mr Hagger had with ASIC at the time, but he doesn’t know if any figure was revealed by Mr Hagger.

Mr Carter says he disagrees with Mr Hodge’s assertion that the investigation in the prior months was about reducing compensation. It was about making sure all the issues were fully worked through, he argues.

Mr Hodge asks Mr Carter if he has a view as to why it took two years for the bank to say it would refund all planned service fees that were deducted from MAPS members. Mr Carter says he does not. NAB announced only in July that it would refund these members.

Mr Carter adds that he doesn’t believe MKBS member fees will be refunded.

1.01pm: A ‘sequencing issue’

Mr Hodge brings up a letter from administrator National Wealth Management Services to the trustee that outlines the two options for remediation. The administrator recommends the full compensation approach, rather than the opt-in approach, and says it will take on legal liability. The NULIS trustee just needs to accept the recommendation.

All of this was known when NAB was in discussions with ASIC, but no one told ASIC that an additional $34m in compensation would have to be paid to members, Mr Hodge says.

That was the point of the phone call between Mr Hagger and ASIC, Mr Carter says. It was a “sequencing issue”, he says. The ASIC report would be released before NAB had established the compensation to be paid.

“Do you recall participating in any discussion about whether NAB should tell ASIC that its estimate was $34m for the PSF issue?” Mr Hodge asks.

Mr Carter can’t recall.

12.50pm: Middle of the pack

NAB’s executive general manager for corporate affairs, Mr Goonan, emailed NAB CEO Andrew Thorburn the day after Corporate Affairs sent its email outlining its recommendations ahead of the publication of ASIC’s report.

Mr Hodge quotes from a NAB internal document attached to the email to Mr Thorburn that says “while we can’t see the other banks’ compensation details, it probably means that NAB is the middle of the pack in terms of compensation”.

The attached document also suggests Mr Hagger and Mr Carter were considering what feedback was to be given to ASIC on the draft report.

The document lists two possible outcomes regarding NAB’s feedback to ASIC: one is that the report is published “in largely the same form as it is now” and the outcome is identified as being that NAB is just one of the banks tied up in the fee for no service issue.

The second outcome is that ASIC’s report is adjusted to include NAB’s expanded service fee numbers and the full compensation to be paid, making NAB the worst in the report.

Mr Carter says there were two important considerations: first that the relevant boards were yet to conclude on the compensation approach and secondly that Mr Hagger called ASIC to be transparent that NAB may miss the deadline [on outlining the full compensation numbers].

12.36pm: Not ‘systemic’

Mr Hodge brings up an email from NAB’s regulatory affairs team to ASIC which includes suggested changes to ASIC’s draft report.

The first was that NAB disagreed with the characterisation of the issues being “systemic”.

NAB also updated a table related to the amounts of compensation.

NAB also asked that the words “members did not receive the general advice services they paid for” be deleted. NAB’s justification was that the services were provided, but not by a planned adviser.

Mr Hodge says even at this point, NAB is saying that it was the disclosure that was inaccurate, not that the services weren’t provided.

“The PDS says the fee was for general advice and support services. Those services may have been provided to members.”

Mr Hodge says he’s struggling to understand the rationale for this being different from a “service-for-no-fee issue”.

Mr Carter again says many members would have been receiving general advice services.

“They would have been receiving them anyway if they hadn’t been paying the fee,” Mr Hodge says. “Yes”, Mr Carter agrees.

12.20pm: Get on the front foot

An extract from the minutes of a group risk return management committee meeting in October 2016 is brought up. This would have been attended by the group executive of NAB.

It says Mr Hagger updated the committee on the fees charged to members that had no advisers linked to their accounts. The total amount of service fees incorrectly charged was $34.3 million, but there was a discussion about the compensation to be paid out. The likely compensation was listed as being somewhere between $15 million and $40 million, the commission hears.

By late October 2016, ASIC was about to publish its report on fees for no service. ASIC contacted NAB to give the company a heads-up about its intention to publish the report.

NAB’s Corporate Affairs team sends an email to staff in October 2016, setting out a communications strategy to deal with the report about to be released by ASIC.

It shows corporate affairs recommended NAB get on the front foot and announce “all aspects of the service fee issue”, including customer and total remediation amount. Alternative options were also set out, including various potential statements from NAB following the ASIC report.

Mr Carter responds, saying the bank did not go with corporate affairs’ primary recommendation because “at the time of the report from ASIC, the relevant boards were yet to formally consider and determine the ultimate compensation for these events. It was deemed proper process to allow board approvals to happen first”.

Mr Hagger contacted ASIC to make sure it didn’t seem like NAB was trying to hide the issue, Mr Carter adds. “We wanted to let ASIC know that there were other events subject to investigation”.

12.00pm: General advice not enough

Mr Hodge moves on to an email sent by Mr Carter that says “ultimately this version recommends the ‘opt-in’ approach to trustee”. That email was sent to Mr Hagger and included the information that the recommendation was awaiting a final legal review and feedback from the CRO.

We’re back at redacted documents and commissioner Hayne is asking NAB counsel Neil Young why legal privilege should apply to a submission the bank made.

Mr Young pleads his argument but Mr Hayne disagrees and says there will be no non-publication direction in relation to the document.

And we move on.

Mr Hodge brings up the letter Mr Carter sent to Mr Hagger. (This is the document NAB wanted to be the subject of legal privilege). We pause again as Mr Hodge looks through two different versions of the document that have different claims of legal privilege in them. Mr Young and Mr Hodge are in quiet discussion while we wait.

They resolve the issue and Mr Hodge says the redacted part of the document contains a table that sets out two options on how to refund fees to customers. The second option, to refund post-SWIFT members without an adviser and write to pre-SWIFT members to ask them if they want a refund, is what was recommended.

Mr Hodge puts it to Mr Carter that he justified this option because he concluded that general advice services were provided, which potentially could justify charging the fees.

Ultimately NAB concluded that the general advice services were not enough to justify charging the fees, Mr Carter argues.

11.44am: ‘Did you ever push back?’

Mr Hodge moves on to the presentation Mr Carter gave to Mr Hagger in September 2016. This is the one Mr Carter can’t recall.

The presentation was bringing Mr Hagger up to speed on the service fees. The document says the services provided were unlikely to justify the fees charged to members that didn’t have an adviser linked to their account.

“Did you ever push back on the search for services provided to members,” Mr Hodge asks. Mr Carter says he can’t recall but that he would have taken a thoughtful, considered view to those questions.

Mr Hodge asks if it was people below Mr Carter that were driving the search for the services or was it Mr Carter. Mr Carter can’t recall.

Mr Hodge brings up another document, an email that was sent to Mr Carter and the chief risk officer that references the letter to be sent to the trustee on the service fee issue. Another email in the chain from Mr Carter to legal questions the “opt-in” option that would require members to “opt in” to receive compensation.

Was Mr Carter pushing the opt-in approach, Mr Hodge asks.

Mr Carter says he wasn’t pushing that approach but he was assessing the issues and consequences.

The opt in approach would mean NAB would remediate less money to members, Mr Carter agrees.

Mr Hodge goes back to the email where it says an option had been discounted, but we don’t know which option in particular has been discounted. Mr Carter can’t recall what it refers to.

Presumably Mr Carter had raised as an option that the services justified the fee, Mr Hodge says.

“Over that period that was one of the questions that was being assessed. That is absolutely true,” Mr Hodge admits.

11.25am: ‘The nature of the fee’

Mr Hodge brings up another chain of emails from September 2016 that Mr Carter sent in relation to a presentation to Mr Hagger, NAB’s former wealth boss, on the fee issue.

In the email he says he can’t see from the PDS what the service fee was for. He clarifies to Mr Hodge that he would have identified the lack of detail in the PDS earlier than September.

“What is it that you wish had been done more quickly,” Mr Hodge asks.

“Over these months there were multiple people involved and issues considered that management were grappling with. With the benefit of hindsight I wish, with all these questions being asked, that we had clarity sooner. But the work was done and the paper taken to the trustee board, I believe, had the right recommendation,” Mr Carter says.

Mr Carter says he doesn’t believe the legal issues were to do with remediation but the underlying legal issues themselves.

The legal work was done to understand the nature and character of the fee, he adds.

Mr Hodge suggests by “the nature of the fee” NAB was trying understand if there was an argument available that would allow it to not fully remediate members who didn’t have a linked adviser. Mr Carter agrees.

On the “eligible services” issue, Mr Hodge puts it to Mr Carter that NAB was considering “who do we have to remediate and how much is it going to cost”. Mr Carter agrees.

11.13am: Landing in the right spot

We’re back after recess and senior counsel assisting Michael Hodge QC Hodge tells the commissioner he and NAB’s counsel have resolved their issue with the redacted document.

NAB executive general manager for wealth Paul Carter is again facing a grilling from Mr Hodge QC over MLC’s charging of fees to super fund members.

Mr Hodge is asking about what was going on in mid-September 2016. He asks if Mr Carter was preparing a presentation for Andrew Hagger, NAB’s former wealth boss, on the fee issue.

Mr Carter can’t recall but says he would have kept Mr Hagger informed throughout the process.

Mr Hodge brings up a document from that time in which it mentions “eligible services” for the fees charged.

Mr Hodge suggests this document is consistent with the attitude demonstrated by Mr Carter’s team over a four-month period in which they were trying to find services used to justify payment of the fees.

Mr Carter says he was contemplating all of the questions he might be asked, and was understanding the nature of the issue to inform what the nature of the remediation might be.

Mr Hodge asks if Mr Carter ever said to his team that “this is the wrong way to think about the situation”. Mr Carter says he doesn’t recall saying that and he never thought that either.

Mr Hodge says Mr Carter’s view is that he wasn’t trying to justify keeping the fees. Mr Carter agrees with that assessment and says he wishes the investigation had moved more quickly. “But where we ultimately landed, I believe, was the right spot”.

10.52am: Going bonkers over definitions

With NAB’s fees staying in the spotlight, while Commissioner Hayne retires to consider the merits of a legal privilege argument, it’s worth having a read of Michael Roddan’s in-depth look at the wrangling over the definitions fees and commissions that took place in yesterday’s hearing.

As Michael reports, “it turns out the definition of whether an instance of customer gouging is a “fee” or a “commission” could end up costing NAB tens or hundreds of millions more in compensation”.

10.34am: Legal privilege considered

Commissioner Kenneth Hayne is leaving the bench to consider whether a redacted portion of a document needs to be the subject of legal professional privilege. Mr Hodge doesn’t think it should be redacted. The hearing is in recess while Mr Hayne makes his decision.

Former NAB wealth executive general manager Paul Carter is undergoing a second day of question at the financial services royal commission. Picture: AAP

10.27am: Pushing the question on fees

Mr Hodge brings up a management briefing paper that Mr Carter drafted and that NAB provided to the trustee regarding the remediation of the service fees charged.

Mr Carter says he can’t recall drafting it, but he knows the final conclusion.

“Ultimately you get to the point where you tell the trustee you’d have to refund the money,” Mr Hodge says.

“Yes,” Mr Carter replies.

Mr Hodge moves on to an email concerning the briefing paper sent on August 2016. The email shows NAB was still looking at the services being provided that could allow MLC to continue charging fees to members who had no adviser linked to their accounts.

“Would you say you were pushing the question of whether it was possible to retain the service fee on the basis you were providing other services,” Mr Hodge asks. “No, I was not,” Mr Carter says.

Mr Hodge implies that “lower level employees” were raising the question of whether these service fees could be charged.

“When did you come to the conclusion that it was not possible to retain the money?” Mr Hodge asks

“When we put a final management paper to the trustee we had settled on a position and recommended full remediation and repayment of the customers’ money,” Mr Carter responds.

10.12am: Raising a question

Senior counsel assisting Mr Hodge continues to question Mr Carter on the fees charged to members.

He moves on to a document that Mr Carter wrote in which it says there is a question over the employer service fee charged that NAB’s legal department was investigating.

“Do you recall a question ever being raised that MLC may not have had entitlement to deduct an employer service fee, pre-SWIFT,” Mr Hodge asks. Mr Carter says no, that question was never raised.

10.05am: No entitlement

Mr Hodge brings up a chain of emails between Mr Carter and two staff members in the super and insurance divisions.

Mr Carter makes mention in the email that there was never entitlement to charge the fee to members.

“So by the 19th of June you’d already recognised there was no entitlement to the fee?” Mr Hodge asks.

“I think that’s what that email would imply,” Mr Carter says.

9.56am: An objection

Mr Hodge is still grilling Mr Carter on the refunding of fees for little or no service provided by MLC.

At the time of the remediation, Mr Carter says it was a serious matter and it was his responsibility “to think through all considerations”.

Mr Carter runs through some of the questions NAB asked at the time to try to define what services may have been provided for the fees charged.

Mr Hodge puts it to Mr Carter that NAB tried to find another service it provided that could justify it charging the fees. Mr Carter agrees.

Mr Hodge asks if he thinks that was unusual.

Counsel for NAB, Neil Young QC, objects on the grounds of the assertion that NAB went through a process of finding a service it provided that could justify it keeping the money.

“The insinuation that NAB was trying to do something is unfair, wrong and does not reflect the earlier evidence,” he says.

9.49am: PDS ambiguity

Commissioner Hayne returns to Mr Carter’s statement that he didn’t think it was clear from the PDS who would provide the services.

“At the time of the investigation, it was asked who was the planned adviser. Could it be MLC, or was it intended to be an external financial adviser? So that’s what I meant,” Mr Carter says.

Mr Hodge asks what the ambiguity was.

“In retrospect there should not have been ambiguity,” Mr Carter answers.

9.46am: Fees and refunds

Mr Hodge moves on to plan service fees

In December 2015 NAB gave a notice of breach of plan service fees being linked to member accounts with no adviser. The amounts of those fees agreed between the adviser and employer were for services to be provided, Mr Hodge puts to Mr Carter. He agrees.

“So you knew that the trustee had been charging fees where there was no linked adviser?” Mr Hodge asks. “By that stage, yes,” Mr Carter replies.

Mr Carter says the fund came to the conclusion that the fees would have to be refunded after they assessed that there was no adviser linked to those fees so no advice could have been given.

We’re hearing Mr Carter say that one of the issues related to the fees for no service was that in the PDS [product disclosure statement], it wasn’t clear who was going to provide the services mentioned.

Mr Hodge asks Mr Carter if is he saying there was some ambiguity as to whether or not the services had to be provided by the adviser.

Ultimately, MLC concluded the fee was not authorised and therefore had to be refunded.

Mr Hodge puts it to Mr Carter that he looked for any way to avoid refunding the money to customers. Mr Carter disagrees.

9.37am: Grandfathered commissions

Day two has just kicked off, and NAB executive general manager for wealth Paul Carter is back on the stand. Questioning him is senior counsel assisting Michael Hodge QC.

Mr Hodge wants to revisit the subject of the success of fund transfer and grandfathered commissions. Mr Carter is asked if he attended a meeting with ASIC on the subject. He doesn't believe he did.

Mr Hodge brings up an email from NAB’s regulatory affairs division to ASIC. She says Mr Carter will be among attendees at said meeting. Mr Carter reiterates he doesn’t recall attending but from that email it appears he may have.

The purpose of fund transfer was to be transparent with the regulator.

If ASIC had said you can’t keep going with these commissions, what would your answer have been, Mr Hodge asks.

While the responsibility of the decision rested with the trustees the view at the time was the perspective of the regulators was relevant and it was seen that that was something that was worthwhile to do, Mr Carter responds.

Mr Hodge repeats his question. Mr Carter says he doesn’t know the technical answer to the question.

9.00am NAB’s Carter back in the box

Day two of the royal commission’s fifth round, which is examining superannuation, will see former NAB executive general manager for wealth Paul Carter returning after almost a full day in the witness stand on Monday.

Witnesses due to appear on Tuesday alongside Mr Carter include Nicole Smith, who previously chaired NULIS, the trustee of NAB’s MLC super funds, and industry fund Australian Super’s chief executive Ian Silk, who’ll be answering questions about industry funds’ advertising and investment in website The New Daily. Jason Peasley, the head of infrastructure at Australian Super, is also scheduled to appear this afternoon. He is expected to face a grilling over the fund’s indirect investment in Pacific Hydro.

On day one of the hearing, senior counsel assisting Michael Hodge QC grilled Mr Carter over fees and commissions, showing how in one case, a member of an NAB-owned MLC super fund earned just 1.2 per cent on a cash balance of $43,000. Of the $1101.95 earned in interest, $892.20 was eaten up by fees and charges, the commission heard.

As James Kirby writes in The Australian today, the superannuation chapter is shaping up as potentially the royal commissions’ most significant. As Judith Sloan asks, how hard is it for funds to put their members’ interests first?

In a new development since Monday’s hearing, financial service minister Kelly O’Dwyer announced that staff from regulator ASIC would be embedded at the Big Four banks and AMP as part of a $70 million package of measures designed to improve compliance and behaviour at Australia’s largest financial institutions.

But as Robert Gottliebsen argues this morning, the extra regulatory burden on the banks could have unintended consequences, especially for small business.

We’ll see you back at 9.30 when the hearings begin for the second day.