Banking royal commission: NAB advisers received bonus despite false witnessing of documents

NAB advisers who falsely witnessed forms still collected most of their bonuses amid slow progress on compensation.

NAB financial advisers involved in falsely witnessing forms signed by thousands of clients were allowed to keep three quarters of their bonuses, the banking royal commission has heard.

Executives in the division also complained about getting a 10 per cent cut to their bonuses, with one, Tim Steele, saying in an internal memo that this would lead to “perceived unfairness of the consequences and lack of trust” in management.

The bank’s chief customer officer, Andrew Hagger, lost $60,000 of his incentive payment due to the incident, but still trousered a $960,000 bonus last year, the royal commission heard.

Mr Hagger this morning admitted to the commission that NAB had been too slow to report the saga to the corporate regulator.

Kenneth Hayne

Key players

Commissioner. A former High Court judge, married to current High Court judge Michelle Gordon. During the hearings he has been tough on banks slow to cough up information required by the commission and dropped hints he is concerned about whether they have a willingness to comply with the law of the land.

Rowena Orr

Key players

Senior counsel assisting the commission. A Melbourne QC with razor-sharp cross examination skills and a background focusing on the intersection between the criminal and commercial worlds.

Philip Crutchfield

Key players

Melbourne QC representing AMP. The wealth manager is in the commission’s sights in this round of hearings, which focus on the scandal-prone financial planning sector.

Matt Collins

Key players

Melbourne QC - and president of the Victorian Bar - representing ANZ. Best known for his defamation work, including representing actress Rebel Wilson in her multi-million-dollar win over Bauer Media.

Charles Scerri

Key players

CBA’s counsel is a Melbourne QC who specialises in representing the big end of town and government agencies. The bank’s well-known track record of scandal in its financial planning business is set to get another airing at the commission.

Neil Young

Key players

NAB’s long-time go-to QC is not to be confused with the Canadian singer-songwriter of the same name - but is very much a rock star at the commercial bar.

With the assistance of customer service officers, more than 200 financial advisers falsely claimed to have witnessed forms in which customers set out who they wanted to receive their superannuation when they died.

NAB has identified 2,520 customers whose forms were falsely witnessed, potentially putting at risk their choice of who should get the death benefit.

The bank first discovered the issue in November 2016, when a routine audit of financial adviser Bradley Meyn discovered that he got a customer service officer to falsely witness death benefit nominations signed by a husband and wife.

Mr Meyn was sacked the following month, and the bank began a wider investigation into the issue.

Banking Royal Commission

What it means for the banks

Opposed by the banks right up until the moment they asked for it in November, the commission presents both obvious dangers and hidden opportunities to the sector.

Their already-battered public reputations have taken further hits and commissioner Kenneth Hayne has mulled the prospect of tighter regulation.

Some of the worst areas exposed by the commission so far - particularly the commissions paid to car dealers and mortgage brokers - are areas where some banks would like to see a crackdown, but lack the guts to take action that would put them in danger of losing market share.

New regulations cutting mortgage broker commissions, for example, would allow the banks to compete on a level playing field while crushing an industry they have allowed to steal away half of all home loan sales.

However, Mr Meyn was not reported to the Australian Securities and Investments Commission until June last year.

“It should have been made in March,” Mr Hagger said.

“It should have been quicker.

“There’s a balance to be struck between the timeliness of the report and the information that ASIC wants to see in the report.

“They would expect to see it quicker than six months, and so they should.”

The commission heard that in May, NAB asked advisers to come forward and admit to false witnessing.

Those that did were to be given an “irreversible amber gate” — NAB jargon for a 25 per cent cut in their bonus.

Support staff who admitted involvement in false witnessing were also to have their bonus cut by 25 per cent, but this was capable of being undone.

Asked by counsel assisting the commission, Rowena Orr, what the debacle said about the ethical standards of NAB employees, Mr Hagger responded that there had been a “failure of discipline”.

“I believe that the client service officers and the advisers concerned thought they were taking a shortcut in the interests of the client, and yet it’s very stark on the form that you either witness a form when you’re present or you don’t,” he said.

The royal commission has also heard that the signature project of NAB’s chief customer officer Andrew Hagger has been making little progress in compensating customers hurt by shoddy financial planners, the banking royal commission has heard.

Mr Hagger set up the Customer Response Initiative in October 2015 after pressure from the corporate regulator following a series of financial planning scandals at the bank and across the industry.

The process was to be overseen by an independent expert reporting to the Australian Securities and Investments Commission.

But in November last year NAB chief executive Andrew Thorburn and the rest of the bank’s board were told the initiative was only 10 per cent of the way through remediating ripped-off clients and a major funding boost was needed.

There was a target of finishing the project by 2020, “however there is no practical likelihood of this without a substantial increase in resources,” the bank’s customer advocate, Dimity Kingsford-Smith, said in a report to the board, tabled at the commission.

Professor Kingsford-Smith said some 540 advisers still needed to be checked to see if their customers needed to be compensated.

And she outlined a laundry list of problems slowing down the process, including that “years of poor conduct were tolerated”, poor record keeping, bad risk controls and difficulty getting data from a variety of “siloed” systems.

In response to the report, NAB chief risk officer Damian Murphy complained that revenue had been challenged because the Australian Securities and Investments Commission had changed its approach to financial advice provided by the industry, including the big banks.

He said that this new ASIC approach involved a “reversal of onus”, with the institution now responsible for demonstrating appropriate advice and service had been provided to customers.

However, Mr Hagger this morning agreed with counsel assisting the commission, Rowena Orr, QC, that NAB had always been required to demonstrate it provided appropriate advice.

He said that Professor Kingsford-Smith’s “number one point to the board was that this process needs to move faster”.

“I agreed and the board agreed,” he said.

He said additional funding had been provided to the Customer Response Initiative.