Conflicts of interest between NULIS and NAB Wealth were too great for the superannuation trustee to manage, the Royal Commission has heard today.
Counsel assisting Michael Hodge suggested to former NULIS chair Nicole Smith the trustee "simply couldn't manage the conflicts" between itself and other related parties in the plan service fee issue which has now plagued NAB during the first week of superannuation hearings.
Returning to the witness stand after NAB's bid to keep some documents secret was rejected by Commissioner Kenneth Hayne, Smith was bombarded with questions arising from documents sent between the corporate regulator and NAB regarding the extent of NAB's error in charging plan service fees.
"Can I suggest this to you? If the trustee was acting in the best interests of members, upon becoming aware of this issue, it would insist that these advice licensees that it was paying carried out a proper review to determine whether or not services had been provided in exchange for fees," Hodge said.
Smith responded: "I think the trustee expected that would happen. Potentially with the benefit of hindsight should we have insisted that happen quicker? I would potentially think you're right."
"Can I suggest to you that the reason the trustee did not do that was because, simply, it could not manage the conflict of interests that exist as between the NAB Wealth business and the trustee," Hodge said.
Smith disagreed: "No, I wouldn't agree that is the reason."
Hodge continued with his line of inquiry, stating: "The interest of the NAB Wealth business was - as is apparent from the ASIC letter - to keep the fees and identify justification for keeping the fees, rather than assessing whether the contracted services had been exchanged for the fees."
Smith said it was not a consideration the trustee would ever take into account when acting in the interests of members.
Earlier, Hodge asserted NULIS "sat on the sideline" as advice licensees determined what methodology would be used to review the provision of services.
"What I'm struggling to understand, is how, consistent with the duties of the trustee to act in the best interests of the members, and consistent with the duties of the trustee to manage conflicts and always prefer the interests of the beneficiaries over the interests of the trustee or any affiliate of the trustee - how it is possible for the trustee to say that it will sit on the sideline and wait to see what position is taken by the advice licensees?" Hodge asked.
Smith disagreed NULIS sat on the sideline, saying she thought "the trustee was actively making sure it understood through CRO (chief risk officer) reporting, what was happening and I would say it was the right position to be taken at the time."
Pressing the issue, Hodge read Smith the transcript of her earlier answer.
"You said, 'my view is that when the advice licensee had determined what methodology it would use to review the appropriate provision of services, that would be the point in time when the trustee would turn its mind to whether it thought it was adequate in respect of superannuation members,'" he said.
"So you would wait until the advice licensees had come to a decision as to what they thought was the most appropriate methodology?" Hodge asked.
Smith replied: "They would determine a methodology, and I think at that point, the trustee would need to turn its mind to whether or not that was adequate in respect of advice fees that were paid to licensees for superannuation members."
Yesterday Hodge observed NAB was in a "hopelessly conflicted" situation by delaying the process of compensating members charged fees for no service in order to maintain profit levels.