National Australia Bank has said its financial planning and “direct advice” businesses will no longer accept commissions from the bank’s own wealth management and investment product providers.
The move – which comes after NAB has come under intense scrutiny during the Hayne royal commission – will result in about $11 million in fees being rebated to about 32,000 customers.
The change, which will come into effect in January, came on the day former Perpetual boss Geoff Lloyd started his role as the head of MLC, NAB’s wealth management unit, which is scheduled to be spun off by the end of the year.
NAB said it would work with other providers of financial products to have “grandfathered commissions paid to them applied for the benefit of members”. It said it supported a move away from “grandfathered” commissions at an industry level, but the changes announced on Monday would not apply to commissions paid to its aligned and independent advisers.
NAB CEO Andrew Thorburn said the moves were part of the bank’s efforts to “rebuild trust”.
“This is a complex issue for the industry, and NAB believes the right framework needs to be in place to appropriately transition off grandfathered commissions,” NAB said in the statement.
The royal commission hearings dedicated considerable time focusing on commissions “grandfathered” by the Freedom of Financial Advice (FOFA) legislation. FOFA banned most conflicted commissions but existing agreements were carved out.
The royal commission scrutinised whether NAB should have acted to scrap them – a move that would have benefited members but adversely affected the overall revenues of the NAB group. Macquarie Group and Westpac Bank-owned BT Financial Group have said they will ban grandfathered commissions.
Under sustained fire
NAB’s wealth management division argued in a paper that terminating the commission risked disgruntled advisers encouraging their clients to switch out of MLC super accounts, which they said would leave remaining members with higher fees.
MLC business has been valued by analysts at between $3.1 billion and $4 billion, a range that is unlikely to have been enhanced by the latest round of royal commission hearings, where NAB’s superannuation and wealth management business came under sustained fire for a litany of issues. These included the reporting of breaches to the corporate regulator and questions around the governance models used by NAB’s wealth business and the trustee of the MLC funds, including the models’ ability to manage conflicts.
AMP still charges grandfathered commissions, but its chairman David Murray said last month the royal commission had shown legacy commission payments are an overhang from history, given superannuation was initially implemented through life companies that had “strong agency sales forces and commissioned structures from way back”. The market had “taken too long to adapt, and the royal commission has been able to expose that”, Mr Murray said.
Banks are also under pressure to pull back on commissions paid to mortgage brokers in the $1.5 trillion home loan market. The Combined Industry Forum, a group of banks, brokers and lobby groups, said last week volume-based bonus payments to mortgage brokers have now been abolished. Trailing commissions are still paid, although the Productivity Commission recently called for them to be abolished.