Banking royal commission: superannuation hearings Monday 13 August

NAB’s Andrew Hagger endured a heavy round of questioning from Michael Hodge QC.

• Suncorp in the witness box
• NAB’s opt-in model
• NAB’s Hagger hammered
• ‘Middle of the pack’ accusation
• NAB’s Andrew Hagger is recalled
• Indigenous super issues

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is conducting the second week of its fifth round of hearings, focussed on superannuation, in Melbourne. Follow the proceedings with us live.

4.56pm: Hearing adjourned

Today began on a relatively positive note, with QSuper’s Lyn Melcer detailing how she and her fund make sure that Indigenous Australians are getting their proper super entitlements, even in remote locations like Lockhart River in Queensland and the APY Lands in South Australia.

But the main portion of today’s hearings was the testimony of senior NAB executive Andrew Hagger, who was pushed all day by senior counsel assisting Michael Hodge QC on whether NAB had deliberately stalled telling ASIC about the true nature of the customer remediation bill it was facing. Mr Hagger stuck to his guns, but his responses drew increasingly terse questions from Mr Hodge, and eventually, Commissioner Hayne.

This afternoon, Richard Gluyas has taken a more detailed look at the fees and charges that have helped dominate business headlines recently.

Thanks for following today’s hearings with us and, join us again tomorrow at 9.30am when we’ll pick up with Mr Hodge questioning Suncorp’s Maurizio Pinto on how the group used its tax surpluses.

4.53pm: Tale of two funds

Has there been a change in the funds, Mr Hodge asks. Old funds that no longer exist became divisions of the Suncorp Master Trust in 2008, we hear from Suncorp’s Mr Pinto. Mr Hodge corrects him - Suncorp Master Trust is the old Asteron fund and the other two funds were wrapped into it. Suncorp Life provides admin services to the Master Trust.

Given the lateness of the day, Mr Hodge asks if court can be adjourned so Mr Pinto can reflect on the relevant document. He’ll be back in the morning to face more questions from Mr Hodge.

Commissioner Hayne is amenable and the hearing is adjourned.

4.49pm: ‘Additional services’

Mr Hodge brings up a board document from 2013 that sought approval for payment of the surplus from the trustee to Suncorp Life. In the 2012 year, the surplus was $8 million. Each year, the trustee has approved the payment of the surplus to Suncorp Life.

Mr Hodge brings up a services deed for Asteron Services and Asteron Life. These were the old names for Suncorp Portfolio and Suncorp Life. It is an agreement to provide additional services and the fee is “the balance of the contributions tax provision each year”. So whatever surplus there was would be paid over to Suncorp Life in exchange for “additional services”, we hear.

Additional services are listed in the document. Mr Hodge asks if there’s any monitoring of these additional services. Annually, there’s a submission to the board that details the services provided, Mr Pinto says.

Mr Hodge goes through the services provided by the trustee and the expenses incurred by the life company. So Suncorp Life will pay all expenses in relation to general fund admin expenses, promotional expenses and professional costs and annual reports, among others.

On the face of it Suncorp Life provides all of the admin services and pay the costs of running the fund in exchange for the tax surplus, Mr Hodge says. Is that what’s happened? Yes, Mr Pinto says. The life company has provided these services in return for the contributions tax surplus.

Are there any other services that need to be provided, Mr Hodge asks? Mr Pinto isn’t sure.

One way the office of the trustee would know this would be if it had some sort of reporting or oversight on the services provided, Mr Hodge suggests. Reporting is provided quarterly, Mr Pinto says.

Do the additional services encompass all of the services needed to administer the super funds? mr Pinto isn’t sure. Mr Hodge goes back to aasking if there was a division between, or identification of, other services that Suncorp Life provided to itself, in order to administer the trust fund.

Mr Pinto says there is reporting provided to the trustee on other services provided to its members by other service providers, such as one which provides investment management services, and another which provides inbound banking services.

The court hears that currently the trustee provides 75 per cent of admin services to members, while Suncorp Life provides the remaining 25 per cent. Prior to the rebalancing the split was 55/45.

4.28pm: Suncorp’s Maurizio Pinto appears in the witness box

Suncorp's Maurizio Pinto. Picture: Supplied

We’re back after a short break and the head of Suncorp’s trustee Maurizio Pinto takes the stand.

Senior counsel assisting Michael Hodge QC begins by asking Mr Pinto about Suncorp Portfolio Services, the trustee of Suncorp. At some point in the past, the trustee invested all of the assets of the trust in life insurance policies issued by another Suncorp entity, Mr Hodge says. Mr Pinto corrects him, saying it wasn’t all of the assets, but some of them.

Those assets were invested in Suncorp Life and Super Ltd. Is it still the case that there are assets of the fund invested with SLSL, Mr Hodge asks. Yes, says Mr Pinto.

And those policies provide that SLSL will invest the money in other ways to the benefit of the members. In addition the trustee has other monies it invests in other ways, through the Suncorp Group Trust, Mr Pinto says, for which Suncorp is the investment manager. Suncorp is also the trustee. There are two trusts: Suncorp Master Trust and Suncorp Pooled Super Trust.

What proportion of the assets are invested in life policies with SLSL, Mr Hodge asks. Mr Pinto doesn’t have the information to hand but says it has changed over time. There has been a decrease invested in life policies and an increase in the amount invested in the group trust, the court hears.

There’s then a tax surplus / tax refund matter. Suncorp Portfolio as trustee ends up with a surplus where it collects the 15 per cent of taxable super contributions but it doesn’t have to remit those to the tax office because of the deductions available from the life policies.

One way of dealing with that surplus would be to return it to the members, Mr Hodge says. That would be one option, Mr Pinto says. Suncorp doesn’t return it to the members though. Instead, the trustee pays it to Suncorp Life and Super. It has done that as far back as 2013 at least, Mr Hodge says. That’s as far back as the commission has looked.

4.05pm: Reporting and the Corporations Act

NAB has since put forward a methodology for NAB financial planning that is closer to ASIC’s proposal, Mr Hagger says. It comes three years after ASIC first asked NAB to scrutinise its advice licensees.

“What do you think that period of delay says about the culture of NAB wealth?” Mr Hodge asks.

“A few things,” Mr Hagger says. “We had tough discussions with ASIC along the way, so from a cultural perspective it shows there were some things that we were holding dear, which ASIC did not hold dear; for example the role of customers in the methodology.”

Mr Hodge interrupts, saying that what ASIC holds dear is that if you contractually say you’re going to provide a service, then you have to provide that service.

NAB has also recently admitted that on 84 occasions between 2014 and 2017 it failed to provide a significant breach notice to ASIC within 10 days, Mr Hodge points out. H asks if Mr Hagger is aware of that.

Eighty three of the 84 breaches related to NAB Wealth, Mr Hodge says. Mr Hagger is not surprised, “because there were a lot of things that needed to be fixed” within NAB wealth and breach reporting was one of them, he says.

Failure to report a breach withing 10 days is a contravention of the Corporations Act, Mr Hodge says. Mr Hagger says he’s aware of the requirement for reporting within 10 days, but he doesn’t know all the relevant sections of the Corporations Act.

Does NAB regard breaches of the Corporations Act as serious? Yes, Mr Hagger replies.

Mr Hodge says he has nothing else to ask.

Mr Hagger is excused and we take a short break.

3.54pm: Customers had to opt in

We hear now that NAB was pushing for an “opt-in” method whereby customers would “opt-in” to say they had not received advice. ASIC’s view was that where NAB had contracted to provide a regular review, it had to have evidence of providing that review in order to retain the fee.

NAB’s response was it had a “combination of evidence points” showing it was fullfilling its contractual obligations. “We were developing a remediation program that we felt was pragmatic and was able to get to the heart of what had gone on between a client and an adviser,” says Mr Hagger.

Mr Hodge gives a summary of NAB’s proposal to ASIC: This was that it would seek physical evidence of an interaction and adviser attestation in order to retain the fees. Then it would ask the customer to confirm they had not received the services. If they did that and subject to a further NAB review, then they would refund the fees.

NAB believed ASIC was broadly happy with NAB’s plan expect for the opt-in proposal, Mr Hagger said. That turned out not to be the case, the bank later found out.

3.40pm: ‘This is going to take even longer’

Mr Hodge brings up a briefing planner for a meeting between ASIC and NAB in 2017. At this time, from October 2017, NAB’s chief legal counsel Sharon Cook took over from Mr Hagger in leading the group on the issue.

Mr Hodge asks why the change. Mr Hagger replies by saying that in the previous six months ASIC had seemed broadly comfortable with NAB’s approach. By October it became a legal matter when it became clear ASIC “was not happy” and the NAB felt it was best for Ms Cook to take over.

Mr Hodge brings up documents on ASIC’s discussions with NAB over the fee for no service issue. One mentions a “fair exchange of value”. What did that mean, Mr Hodge asks.

NAB’s “fair value” program was better known to the public as the “NAB breakup” advertising campaign, Mr Hagger explains. The concept was designed to ensure the public was getting Fair value in exchange in its dealings with the bank, he says..

Mr Hodge puts it to Mr Hagger that ASIC’s position was that if NAB said it was going to deliver a service, it needed to deliver that service to retain the fees. NAB disagreed with that position, Mr Hodge is arguing.

“Well, ASIC’s view was in order to determine whether services had been provided NAB couldn’t reply on customers confirming whether the service had been provided or not,” Mr Hagger replies.

“Throughout, we were having tough conversations with ASIC... all this was going on through from May 2017 to when ASIC sent its legal letter.” That letter was sent around October 2017, he says.

“Do you say that you proposed to ASIC that you would get to retain the fees if clients confirmed they had received the contracted services,” Mr Hodge asks. “Yes,” Mr Hagger replies. They said that in June 2017, he adds.

Mr Hodge brings up an ASIC document, a letter from NAB to a Ms McCauley in July 2017. Mr Hodge repeats the proposition that if NAB didn’t provide the service it couldn’t retain the fees and says NAB didn’t agree with that.

“We have a digital footprint of records of interactions with customers,” Mr Hagger says. “And we have a cohort of 48,000 customers where we dont have digital evidence of interaction and we want to find out what’s happened. So we said we need to find more evidence of what’s happened, discussions between advisers and customers and that was a key part of the second of June remediation approach.”

“At one end of the spectrum ASIC was saying you need to pay all the fees back ... and we put forward a proposal and we’d had initial feedback from ASIC that we were on a reasonable track but it became apparent they weren’t happy with that.”

Mr Hodge isn’t impressed.

“If I ask you a question and then you begin saying a whole lot of other things in order to try to justify your position that are not an answer to a question this is going to take even longer than it’s already been taking. Do you understand that?”

Mr Hagger says he will try to be more succinct.

3.18pm ‘This is seriously your evidence?’

Senior counsel assisting the financial services royal commission Michael Hodge QC questions NAB executive Andrew Hagger at hearings in Melbourne.

Mr Hodge goes back to Mr Hagger’s claim of being “open and transparent”, despite not telling ASIC’s Mr Tanzer that one of the board meetings had already taken place and resolved the issue.

Mr Hagger concedes that he could have told Mr Tanzer that the board had met and that NAB’s best estimate was the amount payable would be $33 million. Mr Hagger agrees but says he was leading Tanzer with “good signposts” on what was to come.

“What you were doing was making sure he was never able to say ‘why didn’t you contact me before we put out the report’,” Mr Hodge states.

“There are at any point in time a number of matters in train with ASIC. We decided that it would be good practice to risk Mr Tanzer and give him the opportunity to include it,” Mr Hagger says.

He says ASIC was aware of the Swift and Encompass matters.

But Mr Hodge is getting frustrated that Mr Hagger’s not answering the questions on being open and transparent. “We were being open, Mr Hodge,” Mr Hagger says.

Mr Hodge asks why NAB didn’t say in writing that its estimate was $34 million. Mr Hagger’s response is that ASIC only wanted an update for TERP.

Mr Hodge asks why he thought that, and Mr Hagger says it was because it was a “tweaking exercise of the matters currently listed. I think you took me to that table earlier on and the MLC matter mentioned was in relation to TERP”.

Wrong answer. “Nope, sorry,” Mr Hodge remarks, before bringing up the document mentioned.

Mr Hodge is going in hard: “I want to understand that this is seriously your evidence. That you say that internally NAB had a discussion and thought, well, this is only referring to the employer super plan for TERP and ASIC is not asking us to give an update on the full amount of compensation we expect to be payable.”

“Yes, that is my evidence,” Mr Hagger replies. “But we thought, given we were near compensation, we decided we should contact Mr Tanzer.”

Did that prevent him from putting it in writing, Mr Hodge asks. No, says Mr Hagger.

Mr Hagger says he could have put the $34 million in writing to ASIC, but what he did was ring Mr Tanzer. “This was all a positive, constructive, open conversation which I held with Mr Tanzer.”

Mr Hodge puts it to Hagger that it didn’t inform ASIC of the higher amount because doing so would mean it would be an outlier rather than “middle of the pack” in terms of the remediation it would be required to pay. Mr Hagger disagrees and says that had nothing to do with the decision.

And it had nothing to do with the fact that NAB CEO Mr Thorburn was releasing the full year results on the Thursday, Mr Hodge asks. That’s right, Mr Hagger says.

“If you’re asking if NAB was trying to control something before the Thursday, quite the opposite, Mr Hodge. I was opening the door to Mr Tanzer... there was nothing we could control at that moment.”

That’s not good enough for Mr Hodge, who repeats he could have put the number in writing.

It is reflected in the way you went about dealing with remediation of the PSFs, Hodge says.

Mr Hagger says when the plan service fee matter was announced, ASIC publicly said NAB had co-operated with them. “I’ll bring that up with ASIC,” Mr Hodge says.

3.15pm: ‘On what possible basis?’

Mr Hodge homes in on Ms Debenham - the head of regulatory affairs - querying with Mr Hagger on October 19, 2016 whether she should inform ASIC of the higher compensation figure.

“What I dont know here is whether the ‘pre-emptive communication’ refers to ASIC or whether it refers to her working with the corporate affairs team,” Me Hagger says. He asks for a moment to study the document.

“The way I read that, she’s referring to a pre-emptive communication into the marketplace, in which case we would need to liaise with ASIC.... if we want to tell our own story our own way we need to liaise with ASIC. Ultimately we didn’t go down that path as you know.”

Mr Hodge goes back to NAB’s head of corporate affairs, Mr Owens, who wanted the bank to embark on a proactive strategy to the market by revealing the issue.

Mr Hodge reads out part of Mr Owens’ email: “By making these recommendations we have kept in mind these principles; the first is be open and transparent with our customers, people and stakeholders; the second of which is do the right thing by our customers; the third of which is maintain good relationships with our stakeholders, particularly our regulators.

“In making these recommendations we have assumed that NWMSL and the trustee will accept management’s recommendation to remediate in full.”

Instead a reactive strategy was decided upon.

“The premise of the reactive strategy was that the ASIC report would not include the full $34 million,” Mr Hodge says.

Mr Hagger replies by saying Mr Owens wouldn’t have known what ASIC was putting in their report at that time because Mr Hagger was still to have a phone call with Mr Tanzer.

Mr Hodge is getting annoyed. “I understand you want to keep referring to the conversation with Mr Tanzer. Is there honestly any way in which you can say referring to the conversation is an answer to the question I asked you?”

Mr Hagger asks Hodge to repeat the question.

Mr Hodge obliges him.

“The strategy was added to .. in that I was to have a conversation with Mr Tanzer,” Mr Hagger replies.

Mr Hodge puts it to Mr Hagger that if the ASIC report had listed the full $34 million then NAB would have taken a proactive communication strategy.

“Possibly, but the media strategy is dynamic... if ASIC said we’re updating our report to include Swift and Encompass all that would be taken into account.”

“In the conversation with Mr Tanzer, I made the point that the PSF matter was being blended with the ASF matter and given that ASIC had had less visibility of the Swift and Encompass matter, it was important, we felt, for them to have an education process that would help them be accurate in their report on the matter if they wished to include it. Hence, another reason for having the door wide open.”

That doesn’t wash with Mr Hodge:

“So this is a new reason for ‘having the door wide open’.”

Hodge digs in, saying what ASIC had asked for was an updated estimate. Ms Debenham updated the figure to $12.4m rather than $33m. She was updating the amount of compensation payable by MLC Nominees, Hodge says.

“You knew that Ms Debenham had not given a written update to include the amounts for Swift and Encompass,” Hodge says.

Hagger stumbles, and says if he was copied on the email then he knew, but if he wasn’t copied on the email then he didn’t know.

“You don’t seriously suggest, Mr Hagger, that you thought there was a possibility that Ms Debenham had updated in writing the compensation figure payable by MLC Nominees to include the amounts for Swift and Encompass.”

Mr Hagger says based on his conversation, he thought the team was waiting for Mr Tanzer “to come back”, but if the working team had come back to Ms Debenham and said it wanted to include Swift and Encompass then she would have responded to that.

“So if ASIC had come back and specifically asked what is the amount of compensation, then you would have told them,” Mr Hodge asks.

Yes, Mr Hagger says.

“You say you wanted to be open and transparent with ASIC, by saying to Mr Tanzer things that would give him the impression that the situation about Swift and Encompass was still uncertain?”

“What I was saying to Mr Tanzer, was we’re nearing completion. If you’d like to know more let us know,” Mr Hagger responds.

Hayne interjects: “So being open and transparent was accomplished by saying ask us what you like but we won’t tell you what to ask.”

Mr Hagger says he was hinting what to ask.

Commisioner Hayne now weighs in.

The board of NWMSL had resolved its position by the time Mr Hagger spoke to Mr Tanzer, Mr Hayne says. That position was and that full compensation would be paid. “On what possible basis would the trustee say ‘No, pay less’,” the commissioner wants to know.

I didn’t want to pre-empt the board meeting, Mr Hagger says he didn’t want to pre-empt the board meeting. But Mr Hayne is not satisfied and repeats the question. Mr Hagger’s answer is that two options were available to the trustee and he respected its independence.

2.34pm: Giving figures to ASIC

We’re back after lunch and NAB’s former wealth boss Andrew Hagger is getting another grilling from senior counsel assisting Michael Hodge QC over the bank’s fee for no service scandal.

Just before the break we heard how Mr Hagger called ASIC commissioner Greg Tanzer to tell him that board meetings on the plan service fee scandal were soon to take place and he didn’t want to pre-empt them. But his phone call occured right after the National Wealth Management Services board had resolved to go for full remediation.

ASIC put out its report on advice fees on October 27, where NAB came in “middle of the pack”. NAB finally told the regulator of the full amount it would have to pay its members ($33.4 million) on November 3.

Mr Hodge begins by asking Mr Hagger if he agrees that by October 21 NAB knew it would have to pay compensation of $34 million. That was NAB’s internal estimate.

It had not told ASIC this figure in writing.

Mr Hagger said earlier he had no problem giving this figure to ASIC. He “was happy” for ASIC to know the figure even though National Wealth Management Services and the trustee hadn’t resolved the final figure. Mr Hagger agrees to all of this and adds that he told ASIC the fees in Swift and Encompass were both higher than TERP but that the trustee was still evaluating options.

“If we stand back for a moment. TERP was 108,000 customers and $12 million involved, and then Swift and Encompass were another 108,000 and $12 million, $13million or $14 million.” So he’s suggesting that Mr Tanzer could have worked out roughly what the full compensation amount would be.

So by that date NAB knew the outcome would be full compensation, Mr Hodge says. “By October 21, NAB knew that the proposal being taken to both boards was full compensation.”

Mr Hagger replies saying he didn’t know “with certainty what the resolution of the trustee would be”.

Mr Hodge is losing his patience: “Mr Hagger, you are the chair of the NWMSL board. Mr Carter had prepared a recommendation that had been approved by you. You had approved for full compensation. You didn’t doubt that you were going to vote in favour of the recommendation.”

Mr Hagger replies by saying it’s not for him to “run over” the trustee board meeting’s resolution. Instead he decided to inform ASIC. “I could not have opened the door any wider”. Commissioner Hayne asks if that’s Mr Hagger’s answer. “Yes,” Mr Hagger tells him.

NAB had provided previous estimates to ASIC without the trustee board’s resolution, Mr Hodge points out. “Can I suggest to you the absence of resolutions from the board did not prevent NAB from giving ASIC its best estimates,” he says.

“I didnt want to pre-empt the trustees decision because I’m very respectful of the trustee board so I invited ASIC to do just that through the conversation with Mr Tanzer,” Mr Hagger says.

He could have instructed regulatory affairs to include Swift and Encompass, he adds, “but in my conversation with Mr Tanzer I was very clear with him that anything he needed to know, to please let me know”.

1.52pm: Hearing adjourned

The commission has now taken a lunch break after an extended morning session during which senior counsel assisting Micheal Hodge QC continued to press senior NAB executive Andrew Hagger about when NAB had kept ASIC properly informed over the repayments it would be forced to make over fee for no service issues.

Mr Hodge has consistently suggested that NAB held information back from ASIC in order to avoid a public relations issue. Mr Hagger has repeatedly denied the claim.

As Ben Butler reports, Mr Hodge argues that the bank withheld an update boosting the amount of compensation from $12.7 million to $34 million as part of a plan put forward by corporate affairs executive Nathan Goonan to say nothing so that the bank would remain “in the middle of the pack” when the report was released.

1.46pm: ASIC finally told

NAB chief customer officer and former group executive for wealth Andrew Hagger is appearing before the financial services royal commission for the second time in Melbourne. Picture: Supplied

Mr Hodge goes to an email from Mr Hagger to a Mr Carter, who appeared before the commission last week, on the evening of October 28 2016. Mr Hagger asks Mr Carter what the best way is to communicate with ASIC on the plan service fee issue .

“You sent that email because you knew NAB had not fully communicated with ASIC about the PSFs,” Mr Hodge states.

“No,” Mr Hagger replies.

“And you knew you were now going to have to do so,” Mr Hodge says.

“No,” Mr Hagger replies.

On November 3, NAB gave a presentation to ASIC. Mr Hagger says he wasn’t aware of what was in the presentation so Mr Hodge brings it up.

The presentation shows the figures for Swift and Encompass. Mr Hodge puts it to Mr Hagger that this was the first time that NAB told ASIC the payment would be $33 million.

Mr Hagger says it was the first time NAB had communicated with ASIC after the trustee meeting and it was the first time ASIC had all of the information together.

We break for lunch until 2.15pm.

1.35pm: CBA’s $100 million bill

A chain of emails between NAB’s head of regulatory affairs, Ms Debenham, and ASIC, in which ASIC sent an email on October 24, 2016, saying it would use the estimates previously provided by NAB for TERP. Ms Debenham confirms ASIC should use the original estimated figure.

“That is consistent with the plan you approved on the Saturday evening to not put in writing the full $33.7 million figure,” Mr Hodge says.

No, replies Mr Hagger.

So this conduct is inconsistent with what you wanted to occur, Mr Hodge asks.

Mr Hagger says he wasnt on this [email] trail and hand’t seen this particular message.

Ms Debenham acted consistently with the plan Mr Hagger approved on October 22, Mr Hodge says.

“She was working with Joanna Burgess on the advice team.. and the plan was on Swift and eecompass that I would discuss with Mr Tanzer... She wasn’t under instruction not to use the number,” Mr Hagger says

He then says NAB was looking at the differences in the PSF issues for TERP, Swift and Encompass.

Mr Hodge says he doesn’t understand the answer given since they were all the same issue.

Mr Hagger says NAB was working through its investigation. He also says the reason the higher figure wasn’t given to ASIC was in part because the trustee hadn’t passed its resolution on the matter.

The trustee passed its resolution on October 26 and the report was published on October 27, the same day NAB announced its full year results. And “NAB was just one in the pack,” Mr Hodge says.

Hagger: “My recollection was CBA...

Mr Hodge is quick off the mark: “They were open and transparent.”

Mr Hagger: “Sorry, if we can go back a bit, can I finish my sentence. CBA announced $100 million so that’s my recollection.”

1.26pm: Was ASIC informed?

Mr Hodge moves on to Mr Cahill’s response to Mr Hagger’s email, in which he says “the chief” was keen to discuss on Monday to ensure Thursday goes as smoothly as possible. NAB was due to release its full-year results.

“A matter of concern was that ASIC would publish its report with the updated figures at the same time as the release of the full-year results,” Mr Hodge puts it to Mr Hagger.

Mr Hagger replies by outlining what the logistics of the full-year results day look like and says the bank was working its way through the fact that the report might be released on the same day.

Mr Hodge moves on to Mr Thorburn’s response on the Sunday morning in which he says he is mainly concerned with “the proposed media response”.

Mr Hodge: “Do you remember if you discussed what the proposed media response was?”

Hagger: “No, I actually don’t remember that”.

Mr Hodge now goes back to the conversation between Mr Hagger and ASIC’s Mr Tanzer.

“Can I suggest that what you’re doing is giving Mr Tanzer the impression that things are still up in the air and you’ll just have to wait and see what the board’s resolved to do?”

“I’d characterise it a little different to that,” Mr Hagger replies, saying he told Tanzer the board meetings were going to occur that week and he didn’t want to pre-empt them.

Mr Hagger then reveals that one of the board meetings was taking place at the same time as his call to Mr Tanzer and that the board had already resolved to full remediation. “But you didn’t tell him that,” Mr Hodge interjects. “No,” Hagger replies.

“Do you seriously want the commissioner to believe that you thought it was possible that the trustee board might opt for less remediation than what had been approved by NWMSL and that NWMSL had agreed to indemnify the trustee for?”

Mr Hagger replies saying he didn’t want to pre-empt what the trustee board was going to do.

“What I felt was appropriate was for me to open the door as widely as I did to ASIC.”

Mr Hodge digs in, repeating that national wealth management had already resolved what to do, but that Mr Hagger failed to inform ASIC.

Mr Hodge asks Mr Hagger if he regards the way he dealt with ASIC as being open and transparent. Mr Hagger says yes it was appropriate to ring and advise Mr Tanzer “where we were up to”.

Commissioner Hayne interjects, saying that was different to what Mr Hagger said earlier, in which he gave evidence that the call to ASIC would put the matter in their hands.

1.09pm: Compensation figures

In a chain of emails between, Mr Hagger, Mr Thorburn and Mr Hagger from the time, it shows corporate affairs said its strategy was to be “reactive from a communications perspective” because NAB was still in the middle of the pack rather than being called out as an outlier.

“The decision was to be reactive on communication on the report itself but we’ll be proactive with Mr Tanzer.”

Mr Hodge focuses on the “ middle of the pack” again but Mr Hagger goes back again to the call to Tanzer saying it was “proactive, open and transparent”.

“It’s part of constructive dialogue with ASIC and then it’s open to them to ask questions,” Hagger adds. “I don’t think I can be clearer than that.”

NAB could have provided an update on the compensation figure, he admits.

Mr Hodge attacks again on the “middle of the pack” mention in the NAB internal emails but Mr Hagger calmly sticks to his guns, repeating that he had an open conversation with Mr Tanzer on the issue.

“I want to put it to you squarely, you understood that regulatory affairs was not going to tell ASIC about the amount of money that was estimated for encompass and swift,” Hodge says.

“I wasn’t involved in that but if we go back to who was on the call on Saturday, which included Andrea Debenham from regulatory affairs, she knew that I was going to call Mr Tanzer and I reported back to her and others afterwards about my conversation with him, so the ball was in his court.”

Mr Hodge goes to Hagger’s call with a number of NAB staff including regulatory affairs and risk and a heated exchange ensues.

Mr Hodge: “You were the most senior person on the call. It was going to be your call as to what strategy was embarked upon.”

Mr Hagger: “Yes, but what I’m distinguishing for you Mr Hodge, and sorry for being pedantic, I know it can sometimes seem complicated...”

Hodge: “It doesn’t seem complicated, Mr Hagger, it seems very simple. You made a decision that you were not going to tell ASIC about the amount of compensation...

Hagger: “No that’s not true, Mr Hodge. If that’s your simple question, I deny that.”

Mr Hodge goes back to the document in which it states Hagger will talk to Tanzer.

He asks what Mr Hagger says he was planning on telling Mr Tanzer when he sent the email to Mr Thorburn and Mr Cahill on October 22, 2016.

The conversation was about “we’re almost there on PSFs”, Mr Hagger says, “and we should let ASIC know that”.

12.52pm: Middle of the pack

We’re still on the dealings NAB had with ASIC in the run up to ASIC releasing its report on fees for no service back in October 2016.

Why do you say to the commissioner that you didn’t say your estimate was more than $33 million, Mr Hodge asks.

“Well I can’t remember whether I did or not,” Mr Hagger replies.

NAB updated the TERP figure estimate in October 2016.

Why couldn’t it update it to include Swift and Encompass, Mr Hodge asks.

NAB knew a review was going on involving the trustee, management and legal. It was different to TERP, ASIC hadn’t been fully briefed on Swift and Encompass, Mr Hagger says.

He repeats that he doesn’t know if he mentioned the full compensation figure in the conversation they had.

“You knew that if they updated the amount of compensation then NAB’s position in the ranking of entities would likely rise,” Mr Hodge says. So NAB would no longer be “middle of the pack”.

“Yes but I wasn’t concerned about that,” Mr Hagger replies.

Mr Hodge refers to the “Project Rio” document, in which corporate affairs said if the report was adjusted NAB would be the worst of the banks.

“That was a document not prepared by me. And on the Saturday I chaired a call and I had the support of Mr Cahill and Mr Thorburn, to work my way through what the approach should be. And what we decided, and I decided, was we should call and I should call either Mr Tanzer or Mr Kell on the Monday and open the door. That then put it out of our hands because the invitation was there for ASIC to include it if they wanted to,” Mr Hagger says.

But there was a decision made not to put it in writing, Mr Hodge says.

Mr Hagger argues that what he did was a positive approach, by going to ASIC to say NAB was investigating the issue.

12.43pm: Communication with ASIC

By July 2016 the possibility of further breaches was identified by NAB in the Swift and Encompass projects.

A breach review document shows an assessment of the number of members affected and fees deducted. Mr Hagger takes another minute to read the document.

The estimates are for TERP, Swift and Encompass.

A letter from NAB in July 2016 to ASIC commissioner Greg Tanzer says NAB is considering the “right compensation methodology” for members. So the question was whether it was possible for NAB to retain the fees despite there being no linked adviser to the accounts, Mr Hodge says.

“That’s one of the questions,” Mr Hagger says.

“That’s the only question,” Mr Hodge says.

That’s not the only question, Hagger replies but Hodge pushes his point again.

Mr Hodge goes to another document, the breach notice given by the administrator, MLC Ltd, in September 2016. This was the day ASIC was notified of the Swift and Encompass breaches.

The document identifies the number of member accounts affected and that work was being undertaken to identify the estimated compensation.

We saw two months earlier there was an estimate identified but that wasn’t included in this breach notification, Mr Hodge says.

“Do you know what ASIC wasn’t told what the estimate was of the amount of fees deducted for Swift and Encompass unadvised members,” Mr Hodge asks.

“We know ASIC wasn’t told, because at the time of the ASIC report in October there were no estimates for Swift and Encompass.”

Mr Hagger says that prior to the October report, he had given an estimate of Swift and Encompass remediation to ASIC’s Mr Tanzer “in a roundabout way”. He thinks he told him towards the end of September.

“Do you think that you told Mr Tanzer that before ASIC released its draft report?”

Yes, Hagger replies

“Why, if you had already told Mr Tanzer, ‘in a roundabout way’ did you not have NAB confirm the figure when it received the draft report on October 21?”

Mr Hagger says he was aware the advice service fee report was being produced, then he was advised that ASIC was intending to include TERP and so “we decided it was appropriate as a courtesy to ring Mr Tanzer and tell him after quite an amount of work ... we were nearing finalisation and therefore whereas the Swift and Encompass was something ASIC knew a lot less about than TERP, if he wanted to include it in the report then he could,” Mr Hagger says.

Mr Hodge asks if that conversation occurred on October 24 2016, just says before the report was released. Mr Hagger says it was around that date.

A file note Mr Hagger wrote at the time is brought up. The file note makes no mention of Mr Hagger telling Mr Tanzer he could mention Swift and Encompass if he wanted but it says if ASIC was to delay the report, NAB might have a final position on the PSFs.

Mr Hagger says his conversation with Mr Tanzer was a “courtesy call” to let him know NAB was working through the issue. “It was very open door, I was saying if he wanted to know anything further, please let me know.”

12.25pm: ‘Estimates can be wrong’

Mr Hodge brings up another document, a letter sent by NAB to ASIC in February 2016. Mr Hagger says he didn’t review this document over the weekend so takes a moment to read it.

It updates ASIC on the number of affected members and the sum of plan service fees paid. By this date, the trustee still hadn’t adopted a resolution on a compensation plan, Mr Hodge says. Mr Hagger agrees.

On to the next document, an email from the chief risk officer to Mr Hagger in June 2016, about the time that Mr Hagger became involved in the issue.

The chief risk officer provided a quarterly update that had been sent to ASIC for the prior quarter. It details the TERP update to ASIC: 97,000 members affected and total incorrectly charges of $11.7 million. Initial compensation amount was listed as $2 million and change. The $11.7 million was the same figure that appeared in ASIC’s draft report it sent to NAB in October of that year.

This was before the remediation plan was presented to the trustee, Mr Hodge says. So the document was prepared prior to April, despite the email being written in June.

The document shows its possible for NAB to estimate the fees deducted and compensation despite there being no approval for remediation by the truste, Mr Hodge argues. “It’s always possible to estimate,” Mr Hagger says. “But estimates can be wrong.”

12.07pm: Working out remediation

Mr Hodge brings up the trustee board resolution from earlier in 2016 and puts it to Mr Hagger that “there is no reason why the trustee would want to do anything other than fully remediate its members.” Mr Hagger disagrees.

“The trustee has a duty to work through what the appropriate remediation methodology is. Otherwise... the trustee would not accept any money from members.”

Mr Hodge says in this case the issue was quite simple.

“It certainly wasn’t simple, Mr Hodge.”

“You didn’t make it simple, let’s work through why,” Mr Hodge retorts.

There was activity within the trustee and management on disclosure, entitlement and remediation, Mr Hagger says. Trustee representatives were looking at the issue and the chief risk officer was also working on what was “a complex issue”.

Mr Hodge suggests NAB wealth raised the issue in the first place. Mr Hagger can’t recall.

To help Mr Hagger, Mr Hodge starts bringing up a series of documents.

The first is the original breach notification in relation to TERP from 2015. Another details the fees erroneously charged to customers and the compensation estimated to be payable.

Do you agree that there is nothing that stopped NAB at this time from making an estimate of compensation, Mr Hodge asks.

Mr Hagger looks to the documents in front of him, pausing. He reads back what Mr Hodge has just read to him estimating the compensation. “At this stage there’s a breach been indicated. What happens after is there’s work carried out to determine the remediation”.

Mr Hodge and Mr Hagger seem to have crossed wires here, so Mr Hodge repeats his question a few more times until they’re both on the same page. Mr Hagger finally agrees with Mr Hodge’s assertion.

11.54am: Paying compensation

Hodge goes back to the ASIC document. Five NAB entities are listed as paying compensation, including MLC.

Another page shows NAB had already agreed to pay $3.5 million and its estimated future compensation was $12.7 million, including compensation in relation to TERP, bringing the total estimate to $16.2 million.

Mr Hodge then brings up another document, an internal email from corporate affairs to NAB CEO Andrew Thorburn that Mr Thorburn then forwarded to Mr Hagger and Antony Cahill. By this time Mr Hagger was no longer for group executive the super business - Mr Cahill was - but Mr Thorburn wanted to discuss the issue with both of them. Mr Hagger can’t recall if the meeting took place.

Mr Hodge brings up the document attached to the email. It is the “Project Rio” issue summary. Mr Hagger says he doesn’t recall reviewing the document before it was sent to Mr Thorburn.

ASIC was expected to release its report the following week. NAB had expected the report to be released later in the year.

Mr Hodge asks if Mr Hagger recalls if at the time he thought the PSF issue would not be announced until later in the year. Yes, Mr Hagger replies.

The email details how NAB’s $16.2 million put it “middle of the pack” in terms of compensation to be paid out.

There was a mention in the email on the plan service fee issue, detailing how the most likely remediation would be $34 million across TERP, Swift and Encompass but there were still legal differences of opinion. The “legal differences of opinion” was because NAB Wealth had raised an issue as to whether it had to refund the full amounts, Mr Hodge says.

No, that’s not accurate, Mr Hagger replies. The issue was it was trying to resolve three issues at the time and it was more multifaceted than just remediation, he says.

There was also a disclosure and entitlement issue, he says. “These were about getting to the characterisation of the fee and its entitlement to be in the hands of MLC.”

Those issues are relevant to the entitlement of MLC to retain the PSFs, Mr Hodge asks. Yes, they are, Mr Hagger says.

Are they relevant to any other issue at this time (October 2016), Mr Hodge asks. Mr Hagger isn’t sure.

11.38am: ‘Open and transparent’ dealings

Mr Hagger only received a summons to appear on Friday and was not invited to submit a written statement for this round.

Mr Hodge begins his questioning on dealings NAB had with ASIC in October 2016 over fees it charged to members who had no advisers linked to their accounts.

At the time, ASIC and NAB were in negotiations over the prospect of an enforceable undertaking for NAB. NAB wanted a change to its licence conditions rather than the enforceable undertaking due to the negative publicity an undertaking would bring, Mr Hodge states. Mr Hagger dodges and gives a predictably lengthy response.

Mr Hodge digs in on this point, repeating on numerous occasions that NAB’s preference was licence conditions. But Mr Hagger refuses to budge, instead giving protracted answers.

Mr Hodge brings up another email from NAB corporate affairs that recommends there be “open and transparent dealings” with customers, stakeholders and ASIC. NAB should reveal that the estimate remediation amount from erroneously charging members is now $34 million, it says.

Mr Hagger can’t recall exactly if he knew NAB was going to “remediate in full” members on that day. He admits he might be getting a bit pedantic by focusing on the “precise sequencing” of the timing of the recommendation.

Mr Hodge moves on. On October 21, ASIC provided a draft of its soon-to-be-released report on fees for no service to NAB. It states that NAB’s estimated compensation was given as $11.7 million.

“That relates to the TERP PSF event matter,” Mr Hagger says.

It was the most recent figure given to ASIC, Mr Hodge says. Mr Hagger can’t recall if that was the most recent figure given.

Who was responsible for updating ASIC on the amount estimated for remediation, Mr Hodge asks.

“Typically the communication with ASIC occurs through regulatory affairs and ... the trustee,” Mr Hagger replies.

When a breach notification is given to ASIC for the trustee, who makes the determination, Mr Hodge asks.

“I’m not on the breach review committee... it’s not something I’m involved in,” Mr Hagger replies.

The breach review committee meets and if they decide there’s a breach, a notice is prepared and sent to ASIC. “The decision is made by the breach review committee, to answer your question squarely,” Mr Hagger says.

When updates are given to ASIC, they are both formal and informal, Mr Hagger says. Typically it’s through regulatory affairs, he says. The trustee has its own communication methods with ASIC, he adds.

11.15am: NAB’s Hagger returns

Former NAB group executive for wealth Andrew Hagger is now in the witness stand for a second time and is answering questions from senior counsel assisting the commission, Michael Hodge QC.

10.59am: Super in the APY Lands

Ms Orr moves on to ask Ms Melcer about a trip she took to the APY Lands in South Australia. There were no QSuper members in that community but she went to help other super funds, including Hesta, AustralianSuper and SuperSA, understand the issues indigenous people face.

There were the same issues in terms of communication, literacy and technology, she says, but with tougher conditions. The community had only received phone reception two weeks before her visit, she says.

“I learned there’s no indigenous word for superannuation, so that wasn’t a very good start,” she tells Ms Orr.

Ms Orr asks Ms Melcer about ways to improve the experience of vulnerable people such as these in terms of super funds. One issue she brings up is binding nomination. Ms Melcer wants a change to include “a child adopted under cultural law” to reflect the kinship structures that operate in indigenous communities.

In cases of severe financial hardship, Ms Melcer says a few funds don’t permit the early release of funds. Ms Orr asks if it is an impost on QSuper to assess financial hardship claims. “Absolutely not,” Ms Melcer says. “It’s their money.”

Ms Orr asks if Ms Melcer thinks it would be beneficial to lower the preservation age for indigenous people. Ms Melcer says no, she “doesn’t want to give up the battle” of Aboriginal and Torres Strait Islander people having lower life expectancy. But she thinks there should be broader requirements for TPD that would allow indigenous people to access their funds.

Ms Orr asks Ms Melcer what her views are on the steps super funds should take to assist those members.

“Step number one is to understand who your member is,” she says. Go out to the community if you can, understand your members, she adds.

Is the industry doing enough to ensure it is acting in the best interests of these members, Ms Orr asks. Ms Melcer says funds can do more and they should “just make a start”.

Ms Melcer is excused and we break for a short recess.

10.44am: Plain-language communications

Ms Orr directs Ms Melcer to a QSuper document as an example of a simplified form of communication sent to indigenous communities. It starts simply: “QSuper may have some money belonging to you.”

QSuper “removed the jargon”, Ms Melcer says.

Ms Melcer tells Ms Orr she is now a member of the Indigenous Super Working Group. She spoke at the summit in 2015 to tell of her experience at Lockhart River, and has spoken at other events since, detailing the action plan QSuper has taken.

Austrac attended the 2015 summit and produced a protocol on identification guidance for indigenous people. Ms Orr asks Ms Melcer what QSuper is doing to make sure it’s following the guidance.

“Everybody has an identity and our job is to help them prove the identity.” It’s an awareness issue on the flexibility Austrac allows on it identification guidance, Ms Melcer says.

Is it an impost on QSuper to do this work, Ms Orr asks. Not at all, Ms Melcer replies.

10.41am: IOOF shares take a hit

Meanwhile outisde the commission, under-siege wealth manager IOOF has tumbled for a second day in early trade, following a bruising examination of chief executive Chris Kelaher at the royal commission.

At 10.30am, IOOF shares had dropped 1.5 per cent to $8.60. Since the royal commission began its public hearings in March, IOOF shares have sunk more than 20 per cent.

Meanwhile, NAB shares have slipped almost 1 per cent in early trade to $27.87 as the bank’s head of superannuation and retail Andrew Hagger prepares to take the stand at Kenneth Hayne’s inquiry.

The falls come as The Australian reports members of two super funds run by National Australia Bank’s MLC division have paid $358 million in commissions over the five years since new payments were banned. Commissions bled $36.5 million from members of the two funds in just the first six months of this year. After the royal commission spent 4 days extracting information out of two NAB executives, Paul Carter from the wealth division, and Nicole Smith, from the super trustee NULIS, the inquiry summonsed Mr Hagger on Friday to appear this week. He is expected to face questions over NAB’s handling of its charging of tens of millions in fees for no service to superannuation members, and the bank’s reluctance to compensate savers.

On Friday, IOOF’s practice of using superannuation members’ savings to fund compensation when it made multi-million-dollar mistakes featured among a long list of transgressions over which it battled with the prudential regulator, at hearings for the royal commission.

It was the first insight the public has been given into the combative relations between IOOF and the Australian Prudential Regulation Authority. IOOF shares fell 2.7 per cent on Friday during the hearings as the royal commission picked apart the conflicts of interests in the company’s superannuation and investments and management businesses.

Documents tabled at the royal commission show that in 2015 APRA told IOOF it was concerned about the difficulty it had in getting “accurate” information from IOOF, its “overall culture” and “the number and range of prudential matters” at the company, which manages $120 billion in retirement savings

10.30am: MyGov problems

QSuper's Lyn Melcer appearing at the financial services royal commission in Melbourne. Picture: Supplied.

Ms Melcer is giving evidence on the obstacles Aboriginal and Torres Strait Islander people in relation to their super funds.

She not only helped QSuper members, but members of other funds: AMP, Sunsuper and LGIASuper.

Ms Orr asks what Ms Melcer did when she returned from the Lockhart River visit.

She says she started writing to people who should already be able to access their super - so they were of the preservation age. She also started making phone calls to look for the next of kin of someone who had died, to try to work through the lost super.

Since she started on this project post the visit, QSuper has reconnected 80 people with lost super totaling $2 million and paid out 17 estates valued at $1.7million. It’s an ongoing project, we hear.

What sort of impost was that on QSuper, Ms Orr asks. “It was no additional resources or cost to us,” Ms Melcer says. “It’s not an impost at all.” She says she has an obligation to make sure people can get their super when they need it.

Ms Melcer details the limitations on her ability to find lost super because of MyGov restrictions, which require that a person must look for their own lost super. “That’s a real problem for people in remote communities,” she tells Ms Orr, partly because they may not have their own computer or the literacy needed to find their funds.

10.20am: Super challenges in FNQ

QSuper head of technical advice Lyn Melcer takes the stand.

Ms Orr begins by asking Ms Melcer about QSuper, Queensland’s largest super fund and the nation’s third largest super fund, with funds under management of $104 billion. It is the default super fund for a number of government agencies and has 580,000 members. It describes itself as a “profit-for-member’”fund and provides TPD, death and income protection insurance for its members.

Ms Melcer has been head of technical advice since 2003, the court hears.

Ms Orr directs Ms Melcer to a document from earlier this year that estimates roughly how many of its members are indigenous. The estimated number was listed as 5648. Of that, 293 members are estimated to live in Lockhart River, the community that Ms Melcer visited in 2014.

Ms Orr asks Ms Melcer about the visit to Lockhart River she undertook with ASIC analyst Nathan Boyle.

Mr Boyle in the last round of hearings described Ms Melcer as “a real champion of indigenous super issues” following the visit.

The approximate population of Lockhart River is 600. She spent three days with the community on the 2014 visit and met with over 100 community members, who were members of four super funds: Sunsuper, AMP, LGIA super and QSuper.

She says she noticed the community had difficulties in meeting super funds’ identification requirements. She says the visit showed her that “not everyone starts in the same place.

“We always assume everyone has a driver’s licence, but that’s not always the case.”

Ms Melcer also detailed technology issues on the visit, with no computers to hand for people to use.

“There’s all these barriers that you don’t expect to see,” she tells Ms Orr.

Ms Melcer gives an example of one QSuper member who was trying to establish his total and personal disability. One of the requirements was that two doctors must certify his TPD. Lockhart River only has one doctor: a flying doctor. So Ms Melcer took a photo of the man, who had lost his eye, and sent it on to two doctors. They denied the TPD claim on the eye but found he was on medication for another issue that would allow him to claim TPD.

9.59am: Indigenous Australians missing out on super

And we’re off.

Senior counsel assisting Rowena Orr opens this morning’s hearing and will take on the questioning of QSuper’s head of technical advice, Lyn Melcer.

This morning’s session will centre on issues Aboriginal and Torres Strait Islander People face when it comes to superannuation, including their difficulties in accessing super funds, the court hears. Among other concerns, Ms Orr will be addressing reports that some Aboriginal and Torres Strait Islander people are missing out completely on their super savings.

We first heard some of the obstacles Aboriginal and Torres Strait Islander people in remote communities face in accessing and understanding their super funds in the last round of hearings back in July. In that round, ASIC analyst Nathan Boyle said many in these communities do not understand how super works and their difficulties are further compounded in cases where English is not the first language, he said.

Ms Melcer will give evidence relating to her role in assisting Austrac to update its guidance on identification requirements for Aboriginal and Torres Strait Islander people, Ms Orr tells the court.

Mr Boyle and financial counsellor Lynda Edwards, who also gave evidence in the last round of hearings, last month picked apart problems with the implementation of Austrac’s updated guidance, including that it had been adopted by super fund head offices but the initiative hadn’t yet fully filtered down to customer-facing roles.

Mr Boyle also told the commission that in 2014 he took Ms Melcer on a visit to an Aboriginal community in Far North Queensland. He and Ms Melcer provided this community with assistance in accessing their super funds, he said. Ms Melcer will give evidence on this visit, Ms Orr says.

Ms Orr calls Ms Melcer to give evidence.

9.34am: Bendigo sees opportunity

Meanwhile this morning, in statement to the ASX announcing the company’s full-year results, junior lender Bendigo and Adelaide Bank managing director Marnie Baker said that “no bank is immune from the heightened attention surrounding the royal commission and other inquiries”.

But Bendigo sees the inquiry as a positive, Ms Baker says, saying it presents a “strong opportunity”, citing its position as the most trusted bank on the Roy Morgan Net Trust Score metric.

Read more about Bendigo and Adelaide’s FY2018 result.

9.25am: Preview

Good morning and welcome to week two of the superannuation round at the financial services royal commission.

QSuper’s head of technical advice Lyn Melcer will kick off this morning’s hearing, followed by Suncorp’s Maurizio Pinto. But the real draw today will be NAB’s former wealth boss, Andrew Hagger.

He has the honour of being the first witness to return to the stand for a second helping, having made an appearance in the wealth round back in April.

NAB has faced the ire of the court more than any other bank or super fund in this round so far and was last week accused of potentially criminal counts of misleading, deceptive or false conduct and failing to report breaches of its notice on time. The pain looks set to continue today.

Join us live at 9.30am.