The gaze of Royal Commissioner Kenneth Hayne will be fixed upon industry funds for the next couple of weeks. Industry funds in general perform better than bank-owned retail funds as the level of fee-gouging is lower. Melbourne law student, Geordie Wilson, covered today’s proceedings for michaelwest.com.au, proceedings which touched on the dubious cash management practices of the big banks. The Commission is unlikely to get to it but, as revealed here, the banks are profiteering even in cash, by using our super as a cheap source of funding upstream in the bank.

“Our wording could have been enhanced”: NAB former employee.

The Royal Commission shifted its focus today, kicking off its examination into the conduct of the superannuation industry. Although industry funds are now the subject of attention, their retail counterparts are bound to be annoyed as senior counsel Michael Hodge announced there would not be any specific examination into the widely reported $7 million CBUS payment to the unions, or CBUS’s spending on the controversial “foxes and the chickencoop” ad campaign.

Remarkably, Mr Hodge also said that, in their investigations, far fewer problems had been uncovered within the industry super funds than in retail.

Witness Paul Carter was called early, the man formerly in charge of NAB’s superannuation products in his role as the the former executive general manager of wealth products.

Evidence moved quickly to a fee-fest, that of a customer who was 100 per cent invested in a cash fund. His monthly statement was tended. Of the $50,000 under management, approximately $1400 was being charged in monthly management fees … for managing cash.

When asked to comment on this, the explanation was that this monthly management fee was uniform within the ‘MLC MasterKey’ series of superfund products, regardless of the portfolio structure.

Mr Hodge then asked what advice could possibly have resulted in a customer having been told it was their best interest to have been put in that fund. While Mr Carter couldn’t come up with such a situation, he went on to explain that the person most likely ended up in the account through having been moved from an MLC Business Super Account to an MLC Personal Account.

Within these hefty fees was a $192 “advisor fee” charged to the customer in the monthly statement. Bizarrely, this fee was not for the actual provision of advice, but merely paid for the privilege of having the ability to contact an advisor to discuss “options”. This discussion of options was not actually financial advice, Mr Carter explained, and the usefulness of the hearing of such options was made more questionable by the fact that, if moved outside a NAB wealth product, this monthly fee would disappear from the advisor’s income also.

Fee Fie Fo Fum

After lunch, the examination moved to a pamphlet provided by MLC MasterKey to employers in promotion of the superannuation product. Within this pamphlet, under a heading titled “Fees you negotiate with your plan advisor” was listed at an eye-watering 5.88 per cent fee on contributions (the “Adviser contribution fee”), a 1.5 per cent monthly fee on assets under management, a “Plan service fee”, and a 23.65 per cent “Insurance commission”.

Most outrageously, the legal status of these fees seem to be completely opaque. Despite their being listed as fees, Mr Carter asserted to Mr Hodge that the charges referred to within the pamphlet were commissions. That being the case, it was possible for customers to call MLC MasterKey to demand that the commissions be waived. There was no indication on the document that this was possible, or any indication at all that the ‘fees’ listed were in fact commissions.

Hodge: “The reference guide issued by MLC that we are looking at is misleading?”

Carter: “I’m not in a position to make that statement”

Hodge: “Just as a matter of fact, what is stated in this document is untrue?”

Carter: “What I’m saying is that wording could have been enhanced”

This was a pertinent issue within Mr Hodge’s earlier questioning which seemed to suggest that NAB may have breached its duties as trustee, in grandfathering a series of commissions in the process of updating a series of member accounts.

When asked by Mr Hodge why these commissions had been grandfathered despite the trustee needing to act in the best interests of customers, Carter gave the response that paying these commissions was, at the time, in the best interest of advisors, drying up the well of customers and so there was an ability to remain cost efficient through a large level of funds under management.

Le plus ca change

No explanation was given when Mr Hodge asked why this assumption was the basis of continuing to pay commissions to NAB-sanctioned advisors; given that these advisors are supposed to be providing advice in the best interest notwithstanding commissions.

Numerous other dubious aspects of the MLC MasterKey came about in the hearing. A 0.44 per cent “Plan Service Fee”, which was not a fee for advice, but a fee for access to financial advice; and a $91.67 “Adviser contribution fee” which, when asked about, Mr Carter said, “I can’t explain it and if it was being charged; this would be in error”.

It could have been any of the banks. It was NAB’s turn today. Industry funds are up next.