Marika gave evidence that she didn’t know what she was being sold. During one call in August 2015, which lasted thirty-eight minutes, Marika was told her existing policy in her super fund had an ‘expiry date’ and ‘you can’t actually cover the whole family’. By the end of the call, the agent had signed her up for a funeral insurance policy for herself, her three children and five grandchildren. On another occasion he called her back for names and contact details of her friends and work colleagues. ‘He was offering me the vouchers. He told me about the vouchers before, then he said he was going to give me vouchers from Coles and Myers, which I didn’t get,’ she said.
On 16 September 2015, struggling to pay her bills, she tried to cancel her policy, but Let’s Insure continued to deduct the premiums. Marika described how Let’s Insure called her, sometimes daily, for more names and leads. Concerned the insurer would hound others as they had done to her, she warned her friends not to take any calls from a private number. In March 2016, unemployed and finding it hard to pay her electricity bills, she asked Legal Aid NSW for help. On her behalf, Legal Aid wrote to the company suggesting it had breached the law in its dealings with Marika and asking for a refund of the premiums she had paid. Let’s Insure eventually refunded Marika’s premiums, totalling $1890, and agreed to cancel her policies. In a letter to Legal Aid, the company said it had refunded the policy as a gesture of goodwill but disputed the allegations and insisted that ‘at all times we have acted properly and in accordance with the law’.
And as if that wasn’t enough, the commission revealed that staff working at the Let’s Insure call centre were offered incentives – including ‘a paid holiday to buzzing Las Vegas, Nevada, USA’, three-day cruises to the Sunshine Coast from Sydney and a Vespa scooter – for selling the most policies. The company stopped selling funeral insurance in March 2018, and admitted to mis-selling hundreds of policies to Indigenous consumers.
It seemed that since Allan Fels had uncovered dodgy sales practices targeting Aboriginal people in the early 1990s, little had changed.
Chapter 20
Round 5: Superannuation
Kept in the dark
THE COMMISSION RETURNED TO Melbourne’s Owen Dixon building for round five, which was to blast sunlight on the country’s $2.7 trillion superannuation sector – a sector built on the backs of millions of disengaged members.
In his opening speech, senior counsel assisting, Michael Hodge QC, used dark metaphors and imagery to create a sense of foreboding. ‘Consumers are unable to do anything more than peer dimly through the darkness of their superannuation trustees,’ he said, adding, ‘There is no dedicated and active regulator shining a spotlight on the trustees and searching out bad behaviour . . . [so] what happens when we leave these trustees alone in the dark with our money? Can they [the trustees] be trusted to do the right thing with our hard-earned money?
‘Trustees are surrounded by temptation,’ Hodge warned. These temptations included giving preference to their sponsoring organisation ‘to act in the interests of other parts of the corporate group, to choose profit over the interests of members, to establish structures that consign to others the responsibility for the fund, and thereby relieve the trustee of visibility of anything that might be troubling. Their duties oblige them to resist all of these temptations.’
Most people don’t know what a trustee is – never mind that they are the guardians of our retirement savings. Trustees are the people appointed to manage a superannuation fund and decide on its investment strategy. Under the Superannuation Industry Supervision Act, trustees must oversee their fund with the sole objective of providing retirement benefits to members or their dependants. Indeed, they are supposed to apply what’s known as ‘the sole purpose test’ to everything they do: each time they make a decision, they have to ask themselves, ‘Will this benefit our members in their retirement?’
At the royal commission, trustees were about to be put on trial, and Hodge’s indication that many trustees were conflicted and that the regulators, ASIC and APRA, had been missing in action was a clarion call for any Australian with super to dig out their annual statements and become engaged.
‘At the end of your working life, you know how much you have. You do not know how much you might have had but for certain decisions made by your trustee, of which you were not aware or of which you were only notified in an obscure way, if at all,’ Hodge said.
*
After making his opening speech Hodge asked for a twenty-minute break to clear his head and prepare for the hard slog ahead. He wanted to return to the fees-for-no-service scandal but look at it in relation to those super trustees who had allowed the practice to go on.
Superannuation is complex and filled with jargon, which made this a challenging yet important round for observers.
Unfortunately, no victims were to be called to explain the human impact of the superannuation gravy train.
One of the major trustee bodies presiding over NAB’s super funds, NULIS Nominees, had been caught up in the fees-for-no-service scandal. NULIS offered super through financial planners or sold it to companies. In a submission to the royal commission, it admitted that between September 2012 and January 2017 it had ‘incorrectly charged’ approximately $35 million in plan service fees (PSFs) to 220,460 members who didn’t even have a plan adviser linked to their account. NAB also acknowledged that correspondence sent to members was potentially misleading because it didn’t tell them they would be charged a PSF or that members could opt out of PSFs. In other words, members were paying for a planner who didn’t exist, they didn’t know they were paying for it, and they weren’t given the option not to pay for it.
Hodge’s first witness, Paul Carter, was a former executive general manager in NAB’s wealth division, from March 2013 until February 2017 when he moved to New Zealand to work in NAB’s Bank of New Zealand. He was polite and defensive, but his replies to questions from Hodge went round in circles. He had trouble remembering things: he couldn’t recall a presentation he’d given to his boss Andrew Hagger, various conversations he’d had with Hagger, or documents he’d ‘sponsored’ or approved. Nor could he recall certain critical emails.
It made the atmosphere in courtroom 4A surreal, with Hodge becoming frustrated with Carter’s obfuscations and the gallery becoming increasingly restless. Some of the interchanges between Hodge and Carter were like skits from Shaun Micallef’s Mad as Hell. In one exchange, Hodge was trying to find out from Carter whether it was clear to members that they weren’t getting advice despite paying for it. Carter said he didn’t recall, which led to the following exchange.
Hodge: Do you recall the specific idea that members who were in Five Star products were not getting advice?
Carter: I don’t recall.
Hayne: Well, is it, therefore, a matter to which you simply did not turn your mind?
Carter: In the context of this, I – that would be – I’m not in a position to say, Commissioner.
Hayne: Is it the position that you did not turn your mind to whether these people were or were not getting advice?
Carter: I don’t know the context in which I would have turned my mind to that question.
The point Hodge and Hayne were trying to get to was the conflict going on inside NAB’s retail super fund division. It dated back to 2012, when NAB had believed a PSF could be charged to members without a linked adviser, and that providing online tools and telephone-based advice services would justify the fee. Then in 2016 NAB decided to simplify the structure of its super business to streamline the number of trustees from three to one and use NULIS as its new mega trustee.
The restructure resulted in an internal debate on whether NAB could continue to charge PSFs in light of the Future of Financial Advice (FoFA) reforms, which had banned commissions but allowed grandfathered commissions – the continued collection of trailing commissions on products sold before June 2013. NAB decided it could continue to charge the fees. It did so by relying on legal advice that
the removal of the fee would trigger a breach of contract with its advisers, who would take their business – and clients – elsewhere, to a competitior, which would not be in the best interests of fund members.
It was tedious stuff, but Hodge wanted to show that the bank’s motivation was to protect the profits of the NAB advisers and the NAB group rather than its members. It also set the scene for the appearance of Nicole Smith, the former chairman of NULIS Nominees, who had been linked with NAB since 2006, become chairman of NULIS in 2013 and resigned a few weeks before giving testimony.
Smith entered the witness box just as the air-conditioner stopped working, causing the room to get hotter and hotter, and frustrations to rise. To make matters worse, Smith spoke so softly it was almost impossible to hear her. When Hayne asked her to speak up, she whispered, ‘Sorry. I’m generally quiet by nature.’
Hodge had established with Carter that fees were charged to protect the business. He now had the former chair of the trustee in front of him, whose sole duty was to look after members, and he wanted her to explain how continuing to charge grandfathered commissions could be fair to members.
‘You recognise, don’t you, that it is not in the best interests of members to be paying commissions?’ he asked.
Smith’s response was, ‘I’m not going to comment on when and how an adviser acts in a member’s best interest. We thought the risks called out were real . . . On balance the trustee believed that grandfathering commissions was in the best interests of members.’
‘You agree that management of the administrator [the bank] is in a hopelessly conflicted position?’ Hodge asked Smith.
‘I believe that they are in a conflicted position. I do not believe it’s hopelessly conflicted,’ she replied.
Not surprisingly, remediation for the theft of $35 million from hundreds of thousands of clients had been slow: it had taken NAB ten months to decide whether to compensate customers, as Hodge pointed out: ‘Do you think that the trustee acted in the best interests of members by waiting until 26 October 2016 to finally decide to fully compensate . . . members?’
‘At the time and on reflection, my view was that management needed to work through the facts of the matter,’ Smith replied, ‘and that the administrator came to the right decision for members without using the board as a blunt instrument to do so.’
Exasperated, Hodge asked her, ‘Can you see that the problem with the approach that you’ve outlined is that the board of directors has only one duty, and that is to act in the best interests of members, and that the administrator is conflicted because the administrator is the one who will have to give back the profits?’
Smith replied, ‘I think that the issue is timing.’
It turned out that Smith had also had a hand in negotiating with ASIC about a breach notice slapped on NULIS. She had conducted a review that found NAB had been charging fees to dead people. It filed a list of 110 breach reports with ASIC, but submitted them later than the ten-business-day requirement specified in the Corporations Act. Despite this, in a letter co-signed in July 2016 with Andrew Hagger, Smith had argued vigorously with the regulator about why it shouldn’t slap a court-approved enforceable undertaking on NULIS.
Kenneth Hayne then asked her a killer question: ‘Did you think, yourself, that taking money to which there was no entitlement raised a question for criminal law?’
‘I didn’t,’ Smith replied.
*
Hodge’s grilling of NAB and its superannuation subsidiaries laid bare some of the dirty tricks it had been using, including pressuring the regulators, breaches, fee gouging and slack remediation payments, and it attracted a lot of publicity – no part more so than Hayne’s question to Smith about whether she’d thought taking money to which there was no entitlement raised a question for criminal law. It received top billing on TV, newspapers and social media and prompted NAB’s Thorburn to tweet, ‘This week we’ve been confronted at the Royal Commission with examples of where we have failed to serve our customers with honour. I’m sorry . . .’1
On 10 August, I wrote a column titled, ‘Is this company really just a pathological liar? That’s the question when it comes to National Australia Bank’. It didn’t go down well at NAB. That morning, Thorburn addressed staff to answer any concerns and to say I was wrong. He also called me and told me the same thing.
For all the mea culpas and promises that it had a good risk culture, what NAB said and what it did were worlds apart. While its staff were being grilled about superannuation in the royal commission, NAB quietly instructed its lawyers to lodge an appeal in the Federal Court on a separate but similar matter relating to a landmark ruling from the Superannuation Complaints Tribunal (SCT). The ruling required the trustee of the NAB super fund, MLC Nominees, to pay almost $8500 in compensation to a member who had lodged a complaint about fees for no service. Significantly, it requested that the trustee write to all other current and former fund members of the fund – as far back as 2008 – to inform them about the tribunal’s decision. It also required the trustee to inform ASIC of its ruling.
A copy of the SCT ruling had been one of a number of documents ASIC submitted to the commission a week before the round of superannuation hearings. NAB’s decision to appeal the SCT ruling ensured it would never be raised at the royal commission because the commission’s terms of reference prevented it discussing issues that were before the courts.
I was sent a copy of the SCT decision. It involved a fifty-five-year-old woman who’d lodged a complaint with the SCT in 2015 after discovering she’d been paying a fee of 5 per cent, referred to as an ‘administration’ fee, for a financial adviser she didn’t know she had and who had never contacted her or provided her with services. She was seeking a refund of the fee.
The SCT reported that the NAB trustee had decided in 2008 that members of the MLC Nominees fund no longer had to pay a regular fee for a financial adviser, but had then failed to inform members of its decision. So members continued to be charged for the fee. NAB then began describing it as an ‘administration fee’, even though the entire fee was paid as commission to an adviser. The SCT said this practice ‘could be regarded as being misleading’.
In its notice of appeal to the Federal Court, NAB’s MLC Nominees said, ‘The trustee is aggrieved by the [SCT] decision.’ It asked whether the SCT had erred by proceeding on the basis that it was part of its statutory task to determine whether members were entitled to be told of the 2008 decision and/or that there was a duty on the trustee to notify the members of the 2008 decision.
It made me wonder how many other cases like this never saw the light of day at the royal commission, either because the institution failed to include them on its misconduct list (as with the CBA Dollarmites scandal) or took legal action to prevent them being examined, or the commission simply didn’t have the time to investigate them.
*
Act three of the royal commission into superannuation began on Monday 13 August and starred NAB’s Andrew Hagger in his second appearance. The theme was the lack of transparency of financial institutions in their dealings with ASIC.
Michael Hodge had a bee in his bonnet. Given the fact that he had already spent an inordinate amount of time with the two other NAB witnesses, calling back Hagger suggested something big was about to go down. Media and the financial community were transfixed.
The normally chilled-out Hagger looked tense, flushed and tired. He’d been served with the summons to appear again on the previous Friday and he hadn’t had much sleep while he’d reviewed documents, talked to lawyers to figure out the line of questioning and tried to get his story straight. He knew what documents would appear, so he had a pretty good idea of what was coming. Perhaps he hoped his charm would win the day. However, Hodge was in no mood to allow Hagger to wriggle off the hook.
Hodge referred back to ASIC’s October 2016 report on how the big four banks and AMP had charged around 176,000 customers an estimated $178 million in fees for advice they’d nev
er received.2 Prior to the release of the report, the regulator had sent the various institutions a draft copy containing the banks’ and AMP’s estimates of how much remediation they owed customers. CBA had provided an estimate of $105 million, ANZ’s estimate was $49 million, NAB’s was $16.9 million and AMP’s was $4.6 million. Westpac hadn’t provided ASIC with an estimate.
At issue was a conversation between Hagger and ASIC’s Greg Tanzer, which Hagger had described in a file note as a ‘proactive communication that was open and transparent’. As Hodge was cross-examining Hagger, extracts from relevant papers flashed up on the courtroom screens. They included a series of board-meeting minutes and other documents that showed the meeting with Tanzer had been anything but transparent.
On the morning of Hagger’s meeting with Tanzer, Hagger had attended a NAB executives’ meeting where a resolution had been passed to more than double the estimation of compensation NAB had provided ASIC, from $16.9 million to $34 million.
‘And you didn’t tell Mr Tanzer that?’ Hodge asked.
‘No, I don’t think I did tell him that,’ Hagger replied, adding that he’d opened the door ‘very wide’ to questions from ASIC if it wanted to know more.
‘I want to be absolutely clear on this,’ Hodge said. ‘You regard the way that you dealt with ASIC as being open and transparent?’
‘Yes, I do,’ Hagger responded.
Commissioner Hayne piped in, saying, ‘So being open and transparent was accomplished by saying, “Ask us what you like, but we won’t tell you what to ask?”’
Hodge summed up what everyone was thinking: ‘Mr Hagger’s evidence that he “left the door open” for ASIC to ask the question reveals both a disrespect for the role of the regulator and a disregard for the gravity of the events in question.’ Onlookers didn’t know whether to laugh or cry.
The reason Hagger and NAB had made the decision not to provide ASIC with its revised compensation figure of $34 million was that the release of ASIC’s final report on 27 October 2016 would coincide with the release of the bank’s all-important full-year results to shareholders. NAB didn’t want bad publicity about its revised compensation figure to marr its annual presentation. The royal commission was shown an email Hagger had received saying, ‘The chief [Andrew Thorburn] is keen to ensure Thursday [results day] goes as smoothly as possible.’
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