October 27, 2016
Institutionally aligned financial advice groups may pay more than $178 million in compensation to over 175,000 customers as a result of charging fees for ongoing advice where no adviser was involved or where an adviser did not provide ongoing service, according to the Australian Securities and Investments Commission (ASIC).
The regulator made the statement as part of Report 499 Financial advice: Fees for no service, which examined the provision of ongoing advice through the advice arms of AMP, ANZ, CBA, NAB and Westpac groups, and is part of ASIC’s wider Wealth Management Project looking into the conduct of large scale financial advice firms.
ASIC stated approximately $23.7 million had already been paid, or agreed to be repaid, as fee refunds and compensation to more than 27,000 customers who had received advice from an Australian Financial Services licensee owned by ANZ, NAB, CBA, Westpac and AMP.
“…compensation may increase by approximately $154 million…”
The corporate regulator also stated that further reviews were being conducted by AMP and the four banks and their licensees to determine the extent of their ongoing service fee failures and as a result of these reviews refunds and compensation levels were expected to increase significantly.
“Based on estimates provided by the licensees to ASIC, compensation may increase by approximately $154 million, plus interest, to over 175,000 further customers, meaning that total compensation for related failures could be over $178 million, plus interest,” ASIC said.
While ANZ has paid, or agreed to pay, the most in refunds and compensation so far at $16.2 million, ASIC estimates CBA will pay the most in refunds and compensation, at $105.7 million, once further internal reviews are completed by the institutions and licensees (see table below).
ASIC also stated the figures, which were supplied this month, are likely to change as reviews progressed and it would report on the actual compensation figures, and progress made in paying them to affected clients, at a later date.
ASIC stressed that most of the failures to provide advice while charging ongoing fees took place before the start of the Future of Financial Advice (FoFA) reforms, which had in turn been a significant factor in identifying the failures around ongoing advice fees and would reduce the future likelihood of it reoccurring in the future.
“Based on our discussions with advice licensees, we understand that the introduction of fee disclosure statements was a key factor that enabled licensees and customers to gain a better understanding of the advice services being charged for and provided, and that this contributed to a number of the systemic failures in relation to ongoing fees and services being identified by advice licensees,” the report stated.
“…we have no evidence of fee-for-service failures of a similar scale occurring…outside of the banking and financial services institutions…
“The requirement to now provide an annual Fee Disclosure Statement to the client, and the requirement for the client to ‘opt-in’ to the advice relationship every two years, will significantly reduce the risk of fees being charged without any advice service provided,” ASIC stated.
While not the subject of the report, ASIC did note that similar issues had not yet been evidenced in the non-aligned sector but that all licensees should review their own operations in the area of ongoing advice fees.
“To date, we have no evidence of fee-for-service failures of a similar scale occurring in advice licensees outside of the banking and financial services institutions covered by this report. However, we strongly encourage other advice licensees to review their operations to ensure they do not have similar issues,” the report stated.
Compensation outcomes as at 31 August 2016, and future projections according to ASIC
|Group||Compensation paid or agreed to be paid||Estimated future compensation||Total (estimate)|
|CBA||$575,587||$105.1m plus interest||$105.7m plus interest|
|NAB||$3.5m||$13.4m plus interest||$16.9m plus interest|
|Totals||$23.66m||$154.4m||$178m plus interest|