CBA Apology Welcomed but Questions Remain

Politicians and industry associations have welcomed the Commonwealth Bank’s (CBA) apology to the victims of poor advice delivered by its staff, but many remain skeptical about the effectiveness of the proposed compensation program.

The CBA has broken its silence on the advice failures within its Commonwealth Financial Planning (CFPL) and Financial Wisdom (FWL) networks, which led to a Senate inquiry into the performance of the Australian Securities and Investments Commission (ASIC). Last week the bank’s CEO, Ian Narev, announced CBA would implement an Open Advice Review program to ensure all clients had the opportunity to seek compensation (see: CBA Apologises, Commits to Client Remediation Program).

The Chair of the Senate Economics References Committee inquiry into the advice failures, Senator Mark Bishop, said the apology from Mr Narev was a ‘welcome development’, but labelled the bank’s overall response as a marginal improvement to what was already in place.

“I think it is shameful,” Senator Bishop told The Australian. “The (CBA) statement is full of empty words and high sounding ideals, but there is nothing meaningful on the table that wasn’t already there.”

Minister for Finance and Acting Assistant Treasurer, Senator Mathias Cormann, said the CBA Open Advice Review program would offer aggrieved advice clients an opportunity to resolve any outstanding and unresolved issues.

“We welcome the announcement of the Open Advice Review program by CBA today,” the Senator said.

He added that it was appropriate and necessary that CBA CEO, Ian Narev, had faced questions from the media.

…the organisation looked at every individual’s role in what happened

Among the questions put to Mr Narev in yesterday’s press conference was a request for an estimate of the likely compensation costs.

Mr Narev, who earlier in the conference said it was important for the bank to be transparent and open, refused to provide this level of detail, saying the bank would not disclose the amount of compensation it expected to pay out, or how many clients it expected to come forward.

Similarly, Mr Narev would not provide the exact details of how many staff were stood down following the bank’s internal investigation into the failures.

“Regardless of the position, name or title, the organisation looked at every individual’s role in what happened, and took action. That has occurred,” Mr Narev said.

The CEO did, however, acknowledge that further issues may be identified during the Open Advice Review program, and staffing action would be taken, if required.

“We think that what we will find (as a result of the review program) is that the vast majority of our clients received appropriate advice. If we’re wrong about that, we’ll obviously learn that through the course of our process,” Mr Narev said.

We think that what we will find is that the vast majority of our clients received appropriate advice

“Because it’s so open, it’s very possible we’re going to learn about new instances and new things that we may not have known about – I hope that isn’t the case, but it’s possible.

“If we do, we will address them as they come up in the same spirit of openness,” he added.

The Australian Securities and Investments Commission (ASIC) issued a short statement following the CBA announcement, saying that any breaches of the law which are identified during the review must be reported to the regulator as soon as practicable, or within 10 business days of the licensee becoming aware of the breach.

ASIC has previously criticised CBA for being slow to act when breaches were identified. In response, Mr Narev said there was no doubt that some of the group’s historical breaching had been too slow.

“On occasions ASIC considers our current breach reporting to be too slow sometimes, often because there’s a lot of facts to gather and we’re trying to work out legally what our position is. But I’ve said this directly to the chairman of ASIC that under my watch, my expectation of all our people is that activity that could give rise to the need to report a breach gets surfaced quickly, and openly – no questions asked. Does that mean I’ll never hear from ASIC again that we were too slow in raising a breach? I doubt it.”

Prior to CBA’s announcement, the Financial Planning Association (FPA) called for all clients impacted to receive full compensation, and offered to put itself forward as a ‘circuit breaker’.

FPA CEO, Mark Rantall, said the Association was willing to volunteer senior members of its leadership team to serve on a joint committee with CBA to identify all clients impacted and establish fair compensation.

In addition, the FPA called for a summit to restore community trust in financial planning.

“We would like to see the summit chaired by an eminent, independent figure. We’re calling for all leaders to attend the summit and then sign up to recommendations,” Mr Rantall said. “We think it’s about time the entire industry regulated itself in co-operation with government, regulators and community stakeholders.”

Following yesterday’s announcement from the CBA CEO, Mr Rantall said Mr Narev’s apology and offer of further reviews for clients were welcome developments.

“Recent events at CBA have sadly overshadowed the thousands of financial planners who do a great job for their clients every single day. While the specifics are yet to be confirmed, CBA’s adoption of our recommendation of an independent review panel as an escalation point is a positive step in the right direction,” Mr Rantall said.

However, he added that the FPA would be looking closely at the detail behind the CBA program, and the bank’s pledge to increase education standards and training of CBA financial planners.

“We will be watching as events unfold and are calling for the panel’s terms of reference to establish a truly independent authority, with unreserved power to make decisions in favour of the client. Anything less than this and the panel will simply not deliver the outcomes needed.

“The FPA will make it a priority to review the action to be taken by CBA to increase education standards. We have proposed that CBA introduces a mandate that each and every one of their financial planners must undertake ethics training, commit to no less than 30 hours of professional development per year and sign up to membership of an approved professional association. These are some of the measures required to put things right and start rebuilding trust between planners and consumers,” Mr Rantall said.

People have waited a long time for this

Mr Narev would not comment on whether it would accept the FPA’s offer of assistance to build its independent panel, highlighting instead that there was “still some thinking to go” on the program:

“Over the next coming weeks, we expect that the final details of the program will be worked out and it will be up and operational in mid-August… We’re staffing the team now.”

“People have waited a long time for this, and I want to do my best to ensure that the frustration they have felt is not going to be exacerbated by their experience once this is in place.”

While Mr Narev explained that the focus of the compensation program would be on those clients who suffered losses through inappropriate investment advice, the CBA later confirmed that clients could also seek an assessment of any insurance advice they received during the period with the possibility of compensation where appropriate.

A website has been established for clients of CFPL and FWL wishing to register their interest in the Open Advice Review program. Click here to visit this site.