Retail superannuation funds kept paying commissions to financial advisers on old accounts years after the practice was banned for new customers in 2014, the financial services royal commission has heard.
NAB executive Paul Carter, representing superannuation subsidiary Nulis, told the commission on Monday he was “concerned” to discover in 2015 that the bank thought it acceptable to continue charging commissions on accounts where no advisory service had been provided.
Under questioning, Mr Carter said the bank feared that scrapping commissions would lead advisers to be “dissatisfied” with recommending NAB’s retail fund and “likely take the business elsewhere”.
Because some NAB advisers worked for external advice groups who could easily shift their clients to other funds of equal benefit, Mr Carter said the cost to NAB could have been significant if grandfathered commissions were scrapped.
Nulis paid customers $35 million in 2017 in recompense for ‘fee for no service’. Then in July 2018 it agreed to pay a further $67.1 million to 205,000 customers for not making it clear in product disclosure statements that they had the right to specify their right to no fees for advisory service on their accounts.
Mr Carter said members without advisers attached had been charged at least 0.44 per cent in fees “for online tools and telephone based advice”.
NAB-controlled super funds could charge commissions as high as 5.88 per cent on agreement between employers and advisors. From 2012 the default commission was 2.8 per cent and contributions were paid on all contributions prior to the introduction of the Freedom of Financial Advice (FOFA) laws in 2014.
An example was produced of a NAB super fund member who had a fund of $43,482 and received employer and salary sacrifice contributions of $11,268 in a year.
The fund was charged contributions tax of $1690.20 while fees totalled $1690.20, of which $135.54 was rebated to the client. The commission heard that the customer had chosen to have 100 per cent of the fund invested in cash, which paid interest of only 1.2 per cent.
NAB’s total costs on the account were $892 of a total earnings in the fund of $1013, the commission heard.
When asked whether the member was getting a reasonable deal by staying in cash, Mr Carter replied that “this is a member choice” and there might have been reasons of which the bank was unaware.
But under questioning from counsel assisting Michael Hodge QC, Mr Carter said it would have been possible for the adviser to switch the client to a non-NAB fund that paid more interest on cash and charged lower fees.
NAB funds charged risk fees of 1.05 per cent for cash investments, the same as it charged on riskier market-based investments. Mr Carter agreed that if the client switched to a non-NAB fund the adviser would have lost the trailing commission charged on the account.
Mr Carter told the commission the bank had retained grandfathered commissions after FOFA was implemented because it helped the bank keep the economies of scale in funding that made its operations efficient. Under questioning Mr Carter said the bank had found other ways of delivering those benefits.
“So the benefits, which are about scale and efficiency and cost savings and things like that, they could be obtained without having to grandfather commissions?”
“Yes,” Mr Carter replied.