NAB’s introducer program has again been placed under the spotlight, with the financial services royal commission questioning the adequacy of the bank’s revised model.
Taking the stand on the sixth day of the financial services royal commission’s final round of hearings, NAB CEO Andrew Thorburn said that he believes the bank’s introducer program has been “contained”.
Following revelations of misconduct involving NAB employees, who fraudulently submitted home loan applications in collusion with home loan introducers, NAB overhauled its program and reduced its introducer network from 8,000 to just over 1,000.
NAB has also ceased accepting referrals from introducers who operate outside the professional services industries.
However, counsel assisting the commission Michael Hodge QC questioned the adequacy of the reforms this week, raising particular concern over the remuneration of referrers, whom he noted are already paid for the primary services they perform on behalf of a client.
Using the example of referrers in the financial advice industry, Mr Hodge asked: “If the adviser was just acting in accordance with their professional duties [and is] going to make a genuine recommendation as to what the customer should do, why does NAB need to pay the adviser?”
Despite acknowledging the commission’s concerns, Mr Thorburn said that NAB still views the remuneration of introducers as “legitimate commercial transactions”.
Mr Hodge also expressed doubt over the efficacy of commission disclosure requirements imposed by NAB on introducers, alleging that they do not achieve the desired outcome.
“Disclosure of that type of conflicted remuneration by professionals doesn’t actually seem to have the type of effect you would desire that it has, which is that a customer would become very - a client would become very suspicious of why the recommendation was being made?” Mr Hodge said.
The NAB CEO acknowledged Mr Hodge’s concern but pointed to the bank’s “simplification” of the program as an attempt to remove conflicted remuneration.
However, Mr Hodge accused NAB of “corrupting” the client’s relationship with their adviser.
“Sure, you’ve stripped out some of the elements that led to fraud and breach of the responsible lending obligations, and what you seem to have simplified it down into is a program where you - and this is my word which I suspect you will disagree with - where you corrupt the professional relationship between an adviser and their client,” Mr Hodge alleged.
Mr Thorburn denied that the professional relationship between client and adviser had been ‘corrupted’ but conceded that if credit products had not been “carved out” of Future of Financial Advice (FOFA) reforms, the payment of referrers would be a form of conflicted remuneration.
While the counsel assisting was speaking specifically about conflicted remuneration of introducers and wealth advisers (not of brokers), the counsels assisting have been particularly focused on commissions recently.
On Monday (19 November), counsel assisting Rowena Orr asked CBA CEO Matt Comyn about broker remuneration, and it was revealed that the big bank CEO was in favour of moving to a consumer pays model as he believed that it “best serves the customer” (a statement that has been widely panned by major players in the broking industry).
Further, commissioner Kenneth Hayne also questioned Mr Comyn over whether he believed brokers deliver ongoing services to clients to justify the payment of trail commission.
On Wednesday (21 November), the royal commission also looked at commissions in the wealth and car dealer space and at the end of last week, the commission asked outgoing Macquarie CEO Nicholas Moore what his perspective was on the ability to pay broker commissions and the impact of fees for service.
Mr Hodge asked: “[W]hat do you think would be the consequence if Macquarie was prohibited from being able to pay mortgage brokers any commission or, in fact, make any payment to brokers — and the brokers were only able to obtain remuneration by charging a fee for service to the customer?”
The non-major bank CEO said that he “did not know” and that it would be “speculating” but added: “[S]uperficially, it would not be... it doesn’t sound as attractive as the current structure. But, you know, I’m guessing here.”
The seventh round of public hearings continues.