Banking royal commission: Bruising bout for NAB executive Andrew Hagger

The clear intention was to blow Andrew Hagger’s credibility apart, and expose the bank’s claims as a sham.

National Australia Bank Chief Customer Officer Andrew Hagger leaves the Federal Court in Melbourne. Picture: AAP

A split decision was returned on Monday in the slug-fest between National Australia Bank executive Andrew Hagger and his legal tormentor, Michael Hodge.

The clear intention of Hodge, senior counsel assisting in the financial services royal commission, was to blow Hagger’s credibility apart, and in doing so expose the bank’s claim to transparent dealings with ASIC as a complete sham.

It was a high bar, which Hagger was almost required to match as he only had a weekend to commit to memory a complex sequence of events that occurred almost two years ago.

Unsurprisingly, both emerged bruised and worse for the experience. Hodge’s frustration occasionally boiled over, while Hagger pleaded he had only been summonsed last Friday and “these matters were some time ago”.

“When you say some time ago, this was about 20 months ago, 22 months ago, a little under two years,” Hodge responded tersely.

The core of the issue was a 2016 telephone conversation between Hagger and ASIC commissioner Greg Tanzer over the scale of an emerging fees-for-no-service scandal at the bank.

Hodge’s position was that Hagger failed the transparency test by withholding from Tanzer that NAB would refund $34 million to customers instead of half that amount.

While the higher figure would eventually come out, any delay would benefit NAB as the inclusion of the smaller amount in a soon-to-be-released ASIC report would position the bank in the middle of the pack in an industry-wide scandal instead of an outlier.

Hagger told Hodge he didn’t want to front-run approvals from the relevant NAB boards by disclosing the higher figure to Tanzer, even though one board had already signed off on the higher figure.

He also said he was unsure of the “sequencing” of events.

The issue went back and forth, but there was no winner in the absorbing contest.

Tanzer has since left ASIC, with the watchdog’s deputy chair Peter Kell scheduled to give evidence on Friday — the last day of the commission’s hearings on superannuation — on the subject of the regulator’s effectiveness.

Only then will it emerge if Tanzer discussed his conversation with Hagger more broadly. Maybe with Kell.

Word on the street

It’s a tangled web that the banks and AMP weave with fees and commissions.

In the real word, a commission is a commission, but in banking or superannuation, things are a little more fluid, shall we say.

An example is with the Future of Financial Advice reforms, which were supposed to phase out commissions in favour of fees.

In the brave new world of FoFA, however, a commission has been known to magically transform into a fee, even though it’s got all the characteristics of a commission.

All you have to do is call it a fee and, hey presto, a metamorphosis takes place.

The word on the street is that some troglodytes at National Australia Bank have questioned the basis of this minor miracle, believing it was more a rebadging exercise to help sustain the bank’s rivers of gold.

Of course, it’s a brave person who gets in the way of bankers and their bonuses.

Fast forward a few years, and NAB is now refunding more than $120 million to hundreds of thousands of customers in relation to fees that were incorrectly charged, as well as fees for which no service was actually delivered.

Thankfully, Michael Hodge, senior counsel assisting the financial services royal commission, was able to clarify the difference between a commission and a fee on the very first day of the superannuation public hearings.

The difference is that, under a commission, there is no obligation to provide a service.

So that much is clear, but then it gets complicated.

As NAB executive Paul Carter said: “Just because a commission is being paid, it doesn’t mean that services aren’t being provided. That is my understanding.”

Hodge responded: “But there’s an important difference, isn’t there, between a commission and a fee for service, which is, if it’s a commission and you don’t provide services, then MLC can say and does say: ‘We don’t have to refund the money if we don’t provide the service.’ ”

Carter agreed, but denied that NAB was avoiding refunds.

So to AMP, which famously got snagged in the fees-for-no-service trap in the second round of royal commission hearings way back in April.

AMP head of financial advice Jack Regan, who still hasn’t returned to work after a torrid time in the witness box, revealed that after five years of FoFA, up to 70 per cent of the fees paid to the company’s advisers were still commissions rather than fees for service.

The reason was that a clause in the legislation allowed grandfathering of pre-2013 commission structures.

While the grandfathering provisions expired if you left your adviser, a loophole allowed a new adviser to pick up the commission, provided they were an AMP adviser.

Not only that, but in the period before a so-called orphan client was picked up by a second AMP adviser, the grandfathered commissions were still charged by the company.

Commissioner Ken Hayne heard that this had been elevated into a business practice called the 90-day rule.

The 90-day rule was scrupulously upheld — AMP, bless them, would only rip you off for 90 days.

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