The damning letter that caught NAB out in fee-for-no-service rort

National Australia Bank misled the corporate regulator about the nature of a fee scandal, the royal commission has heard.

Nicole Smith, former chair of NULIS (NAB's super trustee), at the banking royal commission in Melbourne. Picture: Stuart McEvoy.

National Australia Bank misled the corporate regulator about the nature of a fee scandal for which it has paid $35m in compensation, the banking royal commission has heard.

Counsel assisting the commission, Michael Hodge QC, extracted the admission from Nicole Smith, the former chairman of NAB’s superannuation trustee company NULIS, near the end of a long day of evidence from company executives yesterday.

But the revelation was only made possible because commissioner Kenneth Hayne threw out a bid by the bank’s top-tier legal counsel, Neil Young, QC, to keep secret its correspondence with the Australian Securities & Investments Commission.

The royal commission is two days into a fortnight of hearings probing misconduct in the $2.6 trillion superannuation industry, kicking off proceedings with a deep dive into NAB and fees it charged to customers in return for little or no benefit. Yesterday the commission also heard NAB chief executive Andrew Thorburn was kept in the loop about the bank’s efforts to downplay the seriousness of its fee scandal in 2016.

In a tense exchange with commissioner Hayne, Mr Young warned that if the document sought by Mr Hodge, a letter to ASIC signed by retail banking boss Andrew Hagger, was made public “there would be unnecessary public revelation of the various concessions and compromises that my client was prepared to put forward”. He said this would also damage the wider public interest because “the ability of organisations, ASIC and corporations, to engage in discussions with a view to agreeing upon appropriate enforcement steps may be hindered” if they knew their secret talks might later be scrutinised by the public.

Mr Hayne took just 45 seconds to consider his decision before delivering a lengthy ruling that boiled down to a one word response to Mr Young’s request: no.

His decision enabled Mr Hodge to take Ms Smith to the details of the letter, which was addressed to ASIC commissioner Greg Tanzer and signed by both Ms Smith and Mr Hagger.

The letter — tendered as evidence — was written on July 22, 2016, as NAB was grappling internally with what to do about the looming issue of superannuation fund members who had been wrongly charged a so-called “plan service fee”. In the letter, NAB told ASIC that the problem with charging the fee was that it was “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”.

However, when asked by Mr Hodge if this “explanation there reflects your view as to the reason why plan service fees should not have been charged to members with a non-linked adviser”, Ms Smith responded: “No.”

Mr Hodge asked: “It doesn’t reflect your view?”

“No,” Ms Smith said.

She agreed with Mr Hodge that her view at the time was that “NULIS had no entitlement to charge fees to members for plan service fees where the member did not have a linked adviser”.

However, she told the commission she could not remember querying the statement at the time she signed the letter.

The royal commission has been drilling down into two hefty fees NAB slugged some super customers with, the “plan service fee”, which supposedly gave customers the ability to “access” basic information services, and the “adviser contribution fee”, which the bank has been at pains to paint as a “commission”.

The precise definition of these fees or commissions could end up costing NAB dearly in future compensation over charging customers fees where there was little or no service provided, as charging a fee requires that a service be provided for.

The royal commission has heard that the plan service fee continued to be charged when customers moved from one of NAB’s corporate fund to a personal fund, although it was reduced from as much as 1.5 per cent to 0.44 per cent.

NAB discovered the problem when it was simplifying its superannuation business in 2016.

Ms Smith said that she believed there was no entitlement to continue charging the fee if a customer in NAB’s Masterkey corporate or personal funds was not linked to a financial adviser — a view she also held at the time.

Mr Hodge asked: “And this is a letter written to ASIC signed by you suggesting that the problem was not that the trustee charge 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?”

“Yes,” Ms Smith responded.

She said that at the time she was “very clear in my mind” that this was incorrect.

However, she was less clear about whether she told ASIC the letter was wrong.

“We had discussions about how — that I felt it was an error,” she said.

Members of Masterkey corporate funds run by NAB were also stung by an “adviser contribution fee” of up to 5.88 per cent of a contribution, even when they transferred out of the company fund and into a Masterkey personal account, the commission heard.

While Ms Smith agreed that the plan service fee was “a fee paid to the adviser in respect of general advice services”, she told Mr Hodge the adviser contribution fee was “a commission that would stop with FoFA”.

Mr Hodge asked whether there had been an “agreement or commitment to remediate for adviser contribution fees”.

“No there hasn’t,” Ms Smith said.

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