Andrew Thorburn blames ‘process error’ over dishonesty for charging customers millions in fees for nothing

National Australia Bank CEO Andrew Thorburn. Saeed Khan/ AFP/ Getty Images
  • At the Hayne royal commission today, NAB CEO Andrew Thorburn denies the bank acted dishonestly in charging customers fees-for-no-service, arguing there was no intent to do so.
  • He blamed poor records for delays in compensating customers, but conceded that three years on, the slow response, which lags behind the AMP and CBA, in similar situations, was unacceptable.
  • The bank is still in disagreement with the corporate regulator over its remediation program for licensees.

National Australia Bank CEO Andrew Thorburn has blamed “process error” over institutional dishonesty for the company’s charging of millions of dollars in fees to customers for services they didn’t receive.

Andrew Thorburn appeared in the witness box at financial services royal commission today and was asked by senior council assisting, Michael Hodge: “Do you accept that to retain fees charged for a service when NAB did not provide that service is dishonest?”

Instances of customers being charged for no service at the bank range from financial planning to 4000 dead superannuation customers whose estates were charged a total of $3 million in fees.

The NAB boss said the charges were “absolutely wrong”, the bank did not intend to do it and thus “I don’t feel it was dishonest in that respect.”

“It’s wrong. It’s absolutely wrong. I think dishonesty goes sort of to intent, is the only distinction I would draw,” Thorburn said

“And I don’t think I’ve seen this case and others – some exceptions – where there was an intention to not do the right thing or maybe even a view, as you’re suggesting, an intention for it to be a problem from the start and someone to ignore it. I don’t think it was that.

“So I think it was wrong that we didn’t pick it up. And I think we got on to it reasonably quickly but it was a process error.

“So I would say it was an unfortunate – it broke trust with our clients and took us too long to find it and to fix it. So there’s a problem for us.”

Problems with customers who transferred from NAB Financial Planning to MLC – a division now being sold off by the bank – who continued to pay fees to their former advisor without being assigned a new one.

Customers began complaining in 2015.

Hodge suggested a possible explanation for the bank’s conduct was it wasn’t “interested in whether the services or advice was provided” and “just didn’t care”.

Thorburn said he didn’t agree, but conceded, it was a possibility.

Hodge asked if there another potential explanation.

“Well, I think when we started this, we wanted to move to a more transparent fee for service for clients, so that they could choose that,” Thorburn replied. “I think we implemented that poorly, Mr Hodge. I don’t think we had proper controls.”

Asked by Hodge whether it dishonest to not care and not check, Thorburn said: “That’s not dishonesty that’s just professional negligence.”

The NAB CEO identified a litany of issues that led to the failures, including poor record keeping, but the bank was also subsequently tardy about refunding customers. Thorburn blamed complexity for the slow response, adding that it was “unacceptable”.

The corporate regulator ASIC asked NAB to review all of its licensees and NAB Financial Planning for ongoing service fee issues in June 2015.

The matter has now dragged on for more than three years, with the bank proposing three remediation methodology options rejected by ASIC.

Another sticking point is the NAB wanting to treat customers differently, depending on whether they were protected under the federal Future Of Financial Advice (FOFA) laws which came into effect in 2014.

NAB lags the other banks that charged customers fees-for-no-service and asked by Hodge if he was “aware that NAB’s approach was out of step with its major peers”, Thorburn said he “wasn’t aware of the detail”.

“I wish I had got a bit more involved to get on top of this quicker. But I delegated this and it was one of the many things that we were working through,” he said, essentially blaming an executive, subsequently made redundant, for the failure to act sooner.

Hodge asked: “And can I suggest this to you: it’s beyond simply unacceptable, it’s absurd for NAB to be suggesting that it would not simply refund the fees that it had charged for services where it had no evidence of having provided those services, on the basis that had it just stuck with commissions, it could have kept the money without having to provide a service?”

Thorburn said the bank got its response wrong.

“I think we were trying to – we had the right intent, but it – you know, we were looking at it too narrowly and too technically, and once you look back on it you see it’s a very – it’s obvious – there was a lot of complexity,” he said.

“I think, when you look back on it now, we could have resolved it a lot quicker.”

‘Big rather than complex’

Asked by Commissioner Kenneth Hayne what was complex, Thorburn said the matter involved 85,000 clients.

“That’s big rather than complex, I think,” the Commissioner replied.

Hodge suggest that “the real problem” for the bank was it addressing the issue with ASIC “was just going to cost the business more than it wanted to pay?”

Thorburn replied: “I actually don’t think that was the reason. I don’t think that was a sort of conscious or openly discussed matter.”

A memo to the board risk committee pointed to “potential revenue at risk” over the remediation issue.

While the bank has now agreed to a remediation method for NAB Financial Planning, the way forward for the banks other for four licensees remain outstanding.

ASIC wants the bank to apply the bank to apply the same methodology to its licensees, but the NAB won’t agree.

“I think that is in active discussion with ASIC, though, right now,” Thorburn said.

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