Australian Banks
charged dead people for Financial Advice; Bankers face Criminal Charges
Newsletter published on August 9, 2018
(1) Australian Banks
charged dead people for Financial Advice; Bankers face Criminal Charges
(2) Bank's attempt to
have evidence kept secret backfires; it charged fees for no service
(3) Australian
Superfunds engaged in Legalised Theft, deductions for unwanted Insurance
The Royal Commission into Australian Banks was forced on the
Government when National Party (rural) MPs revolted, just after the Queensland
state election in which One Nation, a Trump-like party, gained 13%.
National Party MPs then joined Labor Party MPs in calling for
a Royal Commission. They said that they would establish a Parliamentary
Commission, even wider-ranging, unless the Government inaugurated a Royal
Commission.
The Banks and Super Funds have been found ripping off their
custimers for decades. Bankers now face Criminal Charges.
It's a gripping story. Overseas readers can follow it at the
Australian Financial Review https://www.afr.com/
NAB = National Australia Bank. APRA = Australian Prudential
Regulatory Authority.
(1) Australian Banks
charged dead people for Financial Advice; Bankers face Criminal Charges
Aug 8 2018 at 7:00 PM
Updated Aug 8 2018 at 7:00 PM
Royal commission: NAB charges dead people, attracts Hayne's
wrath
by James Frost
NAB's practice of charging for services it never delivered
has been identified as a possible breach of criminal and civil laws,
following a bruising day at the Hayne royal commission where the bank admitted
to charging dead people for financial advice.
The bank's wealth and superannuation businesses remained in
the commission's cross-hairs for a third day with the former chairwoman of NAB's
NULIS super trustee business Nicole Smith rejecting a claim the business was
"hopelessly conflicted".
"I believe it was a conflicted position. I do not agree it
was hopelessly conflicted," Ms Smith said.
Ms Smith was being grilled about how she as the fund's
trustee allowed NAB's Wealth arm to charge members for advice they never
received, investigate the matter, and then reach a conclusion about how they
should be repaid fairly.
Commissioner Kenneth Hayne put the sector on notice when he
asked Ms Smith if she had considered whether collecting fees for services it
didn't provide would expose the bank to
a civil or criminal proceeding.
"Not at this time, no," Ms Smith said.
"Did you think yourself taking money to which there was no
entitlement raised a question of the criminal law?" Commissioner Hayne
asked.
"I didn't," Ms Smith responded.
NAB operates super funds for a number of large corporate
entities including BHP and South 32. NULIS is the trustee that oversees the
administration of NAB funds.
Ms Smith resigned from NULIS on June 30, 2018. She was paid
$285,000 in 2016-17 down from $302,500 the previous year.
Before she stepped down she conducted a review that found NAB
had charged dead customers for financial advice fees. She said the issue was
identified in May after CBA was outed for a similar practice.
Finance Sector Union of Australia national secretary Julia
Angrisano said the hearings were evidence of deep and systemic issues at the
bank.
"Charging fees for no service is bad enough but when a bank
starts charging dead people for financial advice, it represents a new low," Ms
Angrisano said.
NAB's decision to persist with the grandfathering of commissions that were
banned under future of financial advice changes and how this was in keeping with
Ms Smith's role as trustee and her duty to act in the best interests of the
fund's members was also explored in detail.
"You recognise, don't you, that it is not in the best
interests of members to be paying commissions?," Mr Hodge asked three times
before he got the answer he wanted.
"I think it is in the best interests of members to have fees
that are as low as they can possibly be, and that the member has control over
the fees and the services and the features that they are paying for," Ms Smith
said.
"That would be inclusive of, it is in the best interests of
members to be in products that do not pay commission versus products that do pay
commission."
NAB was also skewered for dragging its feet over the
implementation of a government initiative to deliver low-cost superannuation
called MySuper.
Counsel assisting Michael Hodge, QC, asked why NAB waited until the last minute to
transfer all eligible members from a high fee account to a low fee MySuper
account.
NAB transferred a total of 5 per cent of eligible members to
MySuper each quarter starting in 2014 before transferring the remaining members
in 2016.
Ms Smith said this strategy was chosen as a safe and
appropriate way to handle the transfer and ensure that no errors or issues
arose.
"Now, one of the consequences of that - or the speed with
which the transition occurs, can I suggest, is that more members remain for
longer in a higher fee-paying ADA before moving over into the MySuper product?"
Mr Hodge said.
Ms Smith was also the centre of a vigorous exchange between
Commissioner Hayne and NAB legal counsel Neil Young, QC, when he suggested Ms
Smith needn't return for more questioning because she did not have any
involvement with a disputed document.
"You will not give her her answer. You will not. Do you
understand me?" Commissioner Hayne ordered.
The hearings continue on Thursday with AustralianSuper CEO
Ian Silk and IOOF CEO Chris Kelaher listed to appear.
(2) Bank's attempt to
have evidence kept secret backfires; it charged fees for no service
Hayne royal commission: NAB's bid for secrecy backfires
by James Frost
Aug 9 2018 at 10:50 AM
Updated Aug 9 2018 at 11:14 AM
NAB's bold
attempt to have evidence kept secret has backfired with the Hayne royal
commission revealing the bank's failure
to meet deadlines, attempts to bury the inquiry in paperwork and withhold
evidence.
Commissioner Hayne opened the hearing on Thursday morning
with his reasons for rejecting a request for non-publication from NAB where he
spoke of the need to balance the public's right to know with the need to protect
commercial interests.
"It is in the public interest that there be an open and
transparent inquiry about how both the regulator and the regulated deal with the
issue of remediation," Commissioner Hayne said.
Among the seven pieces of evidence that NAB was attempting to
keep out of the public sphere was an ASIC document titled "Outline of suspected
offending by NAB Group" from October 2017. It dealt with the bank's involvement
in charging fees for no service, plan
service fees conduct and remediation of those wrongly charged fees.
Among the findings in the document were claims that the bank
had received as many as 40 complaints from super fund members about being
wrongly charged fees as far back as 2011.
After Hayne rejected NAB's claim for legal and professional
privilege, counsel assisting Michael Hodge QC detailed the chain of events that
led to NAB's ambit claim for secrecy.
Mr Hodge said NAB had been issued with a notice to produce
documents relating to the fees for no service by July 9.
NAB did not produce the first set of documents in relation to
that notice until more than ten days later on July 20 when it delivered 31
documents. It followed up with a further
500 documents and then dumped an additional 3000 documents on the royal
commission last week.
However NAB withheld four documents that related to its
discussions with ASIC over fees for no service and would not hand them to the
commission until August 3. Mr Hodge said
the other three documents of the seven that were the subject of NAB's legal
professional privilege claim were never given to the commission.
"Unfortunately that particular matter of responding to your
compulsory notice has contributed to some of the difficulties that the NAB has
faced in dealing with some of these confidentiality matters," Mr Hodge said.
Among the issues the documents explore is NAB's attempts to
introduce the concept of "fair value exchange", where NAB argued that while it
did not provide the services it charged customers for, the bank provided other
services that may have been of equal value and therefore no compensation was
needed.
An email from ASIC on December 22, 2016 rejected the bid to
minimise its offending as wholly inappropriate.
"We do not agree that the fair exchange of value concept you
have described to us as a customer centric approach. We do not consider it
acceptable or NAB to include such concept in its methodology for its current
review," the email read.
But NAB would continue to push the idea that it could find
other services that met the definition of advice.
ASIC's senior executive leader of financial services
enforcement Tim Mullaly wrote to NAB's chief legal counsel Sharon Cook on
November 3, 2017 and warned her that this was not an acceptable approach.
"The most recent position NAB has put forward as the basis
for its remediation approach in these matters is a concept of measuring
'customer/adviser interaction' or assessment of whether the 'spirit' of customer
agreements was adhered to," the letter reads.
"ASIC does not consider this approach is appropriate to
replace the express commitments given by NAB to its customers in service
agreements."
The developments follow a horror day for the big four banks
on Wednesday where Commissioner Hayne raised the prospect of criminal charges for taking
money to which it was not entitled and the bank admitted it had been charging a number
of dead customers for financial advice.
(3) Australian
Superfunds engaged in Legalised Theft, deductions for unwanted Insurance
Aug 5 2018 at 11:00 PM
Updated Aug 5 2018 at 11:00 PM
APRA needs to be held to account on superannuation fund
performance
by Adele Ferguson
A multibillion-dollar Commonwealth superannuation fund whose
137,350 members include public servants, defence personnel, SES officers and
some former politicians, has been labelled a rip-off, opaque and not acting in
members' best interests.
Former Labor politician Mark Bishop, who chaired a landmark
Senate inquiry into Commonwealth Bank that called for a royal commission back in
2014, said the fund makes the banks look like angels.
Since he joined the $12.5 billion Public Sector
Superannuation Accumulation Plan (PSSAP) last September he was put into a
default insurance scheme he didn't know he was in – and didn't need - which has
been deducting a whopping $774 a fortnight in income protection premiums. In
July 2018 he checked his account balance (not for the full year) and noted it
was $9000 less than it should have been.
Bishop is one of millions of Australians passively funnelled
into life insurance policies through their super, worth billions of dollars a
year in premiums to the insurers, which provide income protection insurance and
lump-sum payouts on death or total and permanent disability (TPD) – through
"group" deals struck between insurers
and super funds.
They are structured on an "opt-out" basis, which means premiums are
automatically deducted unless the member specifically opts out. It has
become a trap for a number of members.
According to the Productivity Commission's ground-breaking
recent draft report into super, one in four people don't know they are paying
life insurance as part of the super. Given the enormous number of multiple super
accounts, many are also unknowingly paying multiple insurance premiums, which is
eating into their retirement savings.
Bishop's case raises broader questions about the
effectiveness of the Australian Prudential Regulation Authority (APRA).
It comes as the royal commission is set to grill APRA on its
oversight of the $2.6 trillion superannuation sector.
Another term for legalised theft
When it comes to fund performance, APRA appears to have been
missing in action.
The Productivity Commission's superannuation report,
spearheaded by Karen Chester, found that one in four funds – retail, industry,
corporate and government funds – persistently underperform. The report also
shows that quality performance data is unavailable and APRA has allowed this to
go on – to the detriment of millions of Australians who are part of the
compulsory super system.
What is even more shocking is APRA had an internal research
division that had a group of researchers requesting and compiling important data
on funds but a decision was made in 2010 to abolish it. There are various
theories why the decision was made but whatever the case it allowed entrenched
underperformance of funds to continue.
In a submission to the Productivity Commission, wealth
consultant Mercer says APRA is responsible for prudential regulation of super
funds and for the supervision of trustee (and director) conduct. It says APRA
has "significant" tools that allow it to regulate the strategic conduct of super
trustees "but … to the best of our knowledge, APRA has rarely used these
powers".
The killer quote says "its style of prudential regulation is
to closely supervise, engage and work with superannuation trustees and directors
and to use its regulatory powers only as a last resort. To the best of our
knowledge, APRA has never been called to account as to why it has not used its
powers in the case of funds that are clearly underperforming."
This is a damning summation of APRA as a regulator but it
explains a lot. For years APRA has managed to sneak under the radar, but not
anymore. Now it has to be held to account.
A joint paper submitted to the royal commission on Friday by
APRA and ASIC on their roles in regulating super entities is telling. APRA
avoids using the word conduct, in sharp contrast to ASIC. It also shies away
from taking ownership for the many mergers that should have happened but didn't
and the persistent underperformance of a number of funds.
In the case of PSSAP, Bishop didn't know he had been put into
AIA's LifePLUS insurance, a default, opt-out income protection insurance. If he
had, he would have opted out.
But the documents, viewed by The Australian Financial Review,
don't make it clear, despite PSSAP's suggesting they do. Nor is it clear the
amount members will be slugged. A convoluted formula on page 17 of a 29-page
document that includes number of days in the month/365.25 x monthly benefit/100
x Premium Rate, a table with age and numbers and simplistic examples is anything
but clear, nor is a calculator buried on the website.
Bishop says in the real world, these hefty fortnightly
deductions would be called legalised theft.
He decided to speak up as a warning to others to check their
super statements. "I'm talking about millions of dollars paid to insurance
companies every year for a form of insurance most people don't need, don't know
about and have not signed up for," he said. "I am not talking about TPD
insurance etc. That is entirely different and usually involves a weekly premium
of approximately $10."
When it comes to fund performance, APRA appears to have been
missing in action. David Rowe
John Berrill, a lawyer who specialises in super and life
insurance, looked at the documents and concluded that anyone over 55 in the
PSSAP fund was being slugged "extremely high" default income protection
premiums.
In Bishop's case he was paying $774 or more a fortnight,
which represented more than a third of his monthly super contributions.
He questioned whether the default insurance payments
unreasonably erode the retirement incomes of PSSAP members over 55, citing the
Superannuation Industry Supervision (SIS) Act section 52 (7) (c) that states
trustees and directors should "only offer or acquire insurance of a particular
kind, or at a particular level, if the cost of the insurance does not
inappropriately erode the retirement income of beneficiaries".
The Insurance in Super Code of Practice, which is yet to be
introduced, states that a 1 per cent cap on earnings is reasonable for insurance
deductions. In Bishop's case, the deductions are far higher than this cap.
PSSAP was sent a list of questions, including whether it
believed its trustees had complied with the SIS Act, whether opt out was
transparent enough and whether members were given enough information about the
cost of default insurance.
The administrator of the fund, Commonwealth Superannuation
Corp (CSC), said it believed it was compliant with the act and that opt out was
sufficient. It said it was reviewing its insurance products in light of the
code.
But it raises questions what the directors were doing in
signing off on such a deal and where was APRA and the government.
In the past financial year it has received 299 complaints, of
which 185 relate to insurance.
On Friday it emailed Bishop saying it would cancel his
insurance and refund the premiums paid.
"The process for refunding premiums is normally applied
within an end-of-month run, however with the size of your premium refund there
may be an opportunity to have this completed within an out of cycle adjustment.
If this is the case we will inform you of that in advance," the email said.
The irony is PSSAP is administered by the Commonwealth.
The Commonwealth Superannuation Corporation administers a
number of funds that have as their members' public servants, former defence
personnel, SES employees, appointees to government boards and instrumentalities
such as the Administrative Appeals Tribunal.
A further irony is Bishop played a critical role in helping
set up the super fund system as secretary and chief industrial officer of the
SDA in Western Australia in the 1980s.
Back then he argued and won a critical case for industrial
super for retail, warehouse and fast food workers. That case established what
would become one of the biggest super funds in the country, REST, which he sat
on as an alternate director until entering politics in 1996.
"A system I was critical in creating is now a vehicle to
pervert the savings intent of potentially thousands of workers around
Australia," he said. There is clearly still a lot to do.
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