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NAB's tips on how to snow ASIC
Australian Financial Review Aug 13 2018 7:07 PM
Karen Maley
Andrew Hagger, the chief customer officer for retail customers of National Australia Bank is an affable fellow with a formidable talent for circumlocution.
It was a knack that Melbourne-based bank used to great advantage back in October 2016.
Back then, the corporate watchdog, the Australian Securities and Investments Commission, had sent out a draft report on advice service fees. The problem for NAB was that ASIC planned to include the bank's plan service fees – where customers in superannuation funds run by the bank had been charged fees on general education advice about superannuation and their investment options, even though they had no financial advisers linked to their account.
The draft copy of the report that ASIC prepared indicated that NAB was likely to face a compensation bill for fees for no service to around 120,000 clients was around $16.2 million – placing it, as one NAB executive put it, "in the middle of the pack" of bank poor behaviour.
The problem for NAB was that senior management in the bank's wealth division already knew that the bill for hitting some 220,000 clients with plan service fees – even though it was impossible for them to get this service – was going to be more like $34 million.
Complicating matters even more, the release of the ASIC report on fees for no service was likely to be released on around the same day as NAB announced its full-year profits. The risk was that NAB's success in lifting profits would be completely overshadowed by a furore over how the bank gouged fees from its clients. At the same time, there were fears that if the failed to disclose the full extent of its problem, ASIC might be critical.
But NAB had a secret weapon in the shape of Hagger. And on that critical weekend in late October 2016, NAB's chief executive, Andrew Thorburn, decided to make full use of Hagger's roundabout method of communication to putatively inform ASIC of the size of NAB's problem without actually giving the regulator any information.
On the following Monday, it was decided that Hagger would make a "proactive courtesy" call to ASIC Commissioner Greg Tanzer, and in an "open and transparent" manner inform him that NAB's plan service fee was likely to be somewhat higher than the $16.2 million mentioned in the ASIC draft report.
Hagger told the Hayne commission on Monday that the previous month he had had a discussion with Tanzer where he had indicated "in roundabout terms" about the extent of NAB's plan service fee issues.
"I remember saying to him, 'You have the number of members, and the approximate dollars involved in terms of the fees is similar, perhaps slightly bigger'" than in the first round of problems NAB had identified.
On the morning of Monday, 24 October, Hagger went into action again, calling up Tanzer and said that if ASIC was going to include plan service fees in its report, "I can advise that we are very close to a resolution. I don't want to front run and pre-empt the board discussions, but if you want to know – and that's probably the key point here – if you want to know anything further about any of this, let me know."
Counsel assisting, Michael Hodge, QC – who possesses an extremely precise intellect – was clearly impatient with this waffle. Why didn't the NAB simply come clean that it was up for some $34 million in compensation?
But Hagger stuck to his guns. Had Tanzer wanted further details about the amount of compensation NAB was up for, "I would have referred him to our earlier conversation, which is that they had the number of members and I had given him an indication of approximately what the dollar figure was.
"So, you know, as an accountant, I could have multiplied those two together. He was obviously capable of doing that."
But Hodge was not satisfied. Hadn't Hagger given ASIC the impression that things were up in the air, when in fact National Wealth Management had already resolved to approve the full remediation and to indemnify the trustee by the time he'd spoken to Tanzer. And was there any possibility that the NULIS trustee would decide on anything less than full remediation for its members?
Hagger, however, didn't budge. "What I felt it was appropriate for me to do, Mr Hodge, was to open the door as widely as I did, which is very wide," he replied.