Bank-owned funds’ bad behaviour exposed in probe.
The banking royal commission shone its spotlight on super last week, uncovering shocking behaviour from bank-owned funds and effectively excusing industry funds. Here’s what we’ve learnt so far from week one of the inquiry’s look at super.
NAB trustee thought it was okay to wrongly take money from customers’ funds
Nicole Smith, the National Australia Bank’s (NAB) former chair of the trustee Nulis, didn’t think it was a crime to take fees for no service from fund holders.
NAB was grilled during the week, and on the third day of questioning, Commissioner Kenneth Hayne suggested criminal behaviour may have taken place over NAB’s part in the ‘fees for no service’ scandal.
When counsel Michael Hodge QC questioned Ms Smith, he asked her if she was in a “hopelessly conflicted position” in asking NAB-related entities to investigate the fraud. These same entities were being asked to investigate, then potentially return millions of dollars in fees fleeced from customers who received no service.
The commission also heard that NAB had been accused of more than 100 counts of potentially criminal behaviour last year, many involving charging fees to super customers for services not provided or to customers who were dead.
NAB’s lawyers, who have been accused of being very “unhelpful” in the lead up to the hearing, repeatedly tried to prevent the public disclosure of damaging documents, but they were unsuccessful.
The bank is also currently paying more than $100 million in compensation to customers who were charged for advice even though they didn’t have an adviser linked to their account.
The evidence against NAB’s activities was so appalling that chief executive Andrew Thorburn was forced to make a public apology.
Long-awaited testimony from industry fund giant an anti-climax
While there may have been speculation that the Government added superannuation to the banking royal commission in order to embarrass industry funds, so far, these funds have gotten off relatively scot free.
The head of Australia’s largest super fund, Ian Silk, took the stand last week to answer questions about whether AustralianSuper may have mishandled customer savings.
Mr Silk’s testimony was highly anticipated, but proved to be anti-climactic, after the two issues expected to bring the fund into disrepute were almost lackadaisically swiped aside with open, unrepentant and perfectly justifiable responses.
The commission was hoping to scrutinise AusSuper’s decision to spend $2 million of member fees to start up online publication The New Daily.
Mr Silk said the publication was created to help increase financial literacy and was not intended to be a “thoughtless cheerleader” for industry super funds. But he did say the publication would promote the “positive features” of industry funds “when the facts warrant it”.
“The intention was to provide an online publication that was directed at … middle Australia,” he told the commission.
“[It is] directed at the sort of people who are the bread-and-butter members of the industry funds, and in our case, members of AustralianSuper, not working class, but working Australia”.
When asked if owning an online media publication was preferable to reducing member administration fees, Mr Silk said: “We don’t splash around members money lightly. It was made on the basis that our judgement that a relatively small amount of money in the context of our multi-pronged approach was worth spending.”
Mr Silk said funding of The New Daily costs members 20 cents a year – or less than the cost of mailing each member a letter.
He was also called out for funding the 'Fox and Henhouse' advertising campaign in March last year.
The advertisement attacked the major banks for lobbying to overhaul the default super fund system, which Mr Silk said would have had dire consequences for working Australians.
“The purpose of the advertisement was to … prevent the lobbying effort that was being undertaken by retail wealth management companies, in particular the big banks, to change the default system from a framework that we say provided significant protection for workers to one that exposed workers to significant risks of mis-selling, cross-selling and conflicts of interest that would have done them significant damage,” said Mr Silk.
He claimed it was a public policy issue and the advertisement served the best interests of Australians. The commission seemed to agree and did not criticise him for it.
Super fund director fees going back to unions
According to the chair of Energy Super's trustee, Scott Wilson, many employed union officials sitting on super boards donate their director’s fees to their employing union, although Mr Wilson keeps his. He says the arrangement is to compensate the union for the time a staff member spends on super related work.
CBUS gets off scot free
Many were anticipating the prospect of getting stuck into industry mega-fund CBUS. The fund is linked to the Construction Forestry Mining Energy Union (CFMEU) and the Maritime Union of Australia (MUA) and has $46 billion under management.
The royal commission requested the fund’s books, examined them and promptly excused them.
IOOF fails the ‘pub test’ for compensation payments
The commission ended the week by putting for-profit fund IOOF in the hot seat, investigating conflicts of interest whereby IOOF put profits before members’ interests, and potentially used the super fund to compensate its members for losses they suffered following a $6.1 million payment stuff-up.
IOOF chief executive Chris Kelaher gave the “pub test” excuse when addressing concerns that the repayment procedure was a “significant breach” of corporate law.
Mr Kelaher maintained that IOOF had fulfilled its “primary goal” of restoring members accounts by compensating them – even though it was with their own money.
“You used the members' money to purportedly compensate them, you know that don't you,” asked assisting counsel Mr Hodge.
“No, I don't agree with you,” Mr Kelaher replied.
IOOF was also questioned about further conflicts of interest and customer fees, and governance and transparency issues.
“What happens when we leave these trustees alone in the dark with our money?”
That was another question asked by Mr Hodge, who warned that trustees are expected to act in a trustworthy manner and in the best interests of fund members. But he expressed serious concern that these same trustees operate in an opaque environment and are “surrounded by temptation” to mishandle member savings.
One thing we have learned is that Australians need to be more engaged with their super funds, checking for fees charged – especially duplicate administrative fees or for services that may, or may not have been rendered, and unnecessary or duplicate insurance policies attached to funds.
The investigation of the super industry continues this week.
Are you a member of any of these funds? What do you think of the news uncovered so far?
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