ASIC released today the Financial advice: Fees for no service report on its work to address financial institutions’ and advisers’ systemic failures.
As part of its Wealth Management Project – which focuses on the conduct of the largest financial advice firms, including the advice arms of AMP, ANZ, CBA, NAB and Westpac groups – the regulator said it found instances where customers were being charged a fee for ongoing advice services, but had not actually received the services.
Approximately $23.7 million of fee refunds and compensation has been paid, or agreed to be paid, to over 27,000 customers of ANZ, NAB, CBA, Westpac and AMP under various licensees that are owned by these businesses, the statement said.
“Further reviews are being conducted by the licensees to determine the extent of their ongoing service fee failures. Refunds and compensation are expected to increase substantially as the licensees’ investigations and reviews continue,” ASIC said.
“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 most of the failures outlined this report occurred before the FOFA reforms commenced.
One of the reasons why customers were being wrongfully charged was because he or she did not have an adviser allocated to them, but had an advice fee deducted from investment products.
In other instances, the adviser allocated to the customer failed to deliver on their obligation to provide the ongoing advice service and the licensee failed to ensure that the service was provided.
ASIC deputy chair Peter Kell said, “Changes introduced through the FOFA reforms have shone a light on the advice fees that customers are paying and the services they should be receiving in return.
“Our report identifies the institutions’ systemic failures in this area, which we are putting right by ensuring that customers are fairly compensated.”
I’d just like to thank the major vertically aligned organisations for yet again dumping on the hard working Non aligned adviser.
On a moral and ethical level allowing these groups to continue to shape our industry is the worst possible result.
Remove vertical integration of product and advice.
Remove banks power in shaping regulation and the Industry “representatives”
They are the problem not the solution..
If these instances of law braking were found in a smaller licensee or adviser then they action would be severe and most likely removed from the industry… It is time to take serius and decisive action to fix the industry otherwise things will never change.
The banks simply don’t care about consumers. Every week a bank is fined or one of their planners is banned. In fact every time a rock is overturned there is a bank ripping off thousands of consumers. Recently banks were found to be encouraging their staff to churn mortgages like they churn into their own insurance products. You would thingk that with the litany of wrongs committed by banks and their KPI incentivised staff that the Government would do something. But Oh no, Minister O’dwyer has introduced the LIF Bill to give the banks an even bigger competitive advantage over the independently owned financial advisers so the banks can wipe out the non-aligned competition, push inferior products and advice, not be bothered with things like actually paying a claim and increase premiums when they please. Great job Minister, you have no idea. Time for a bank royal commission wouldn’t you say!
Further to above point, it’s funny how differently clients, regulators and ‘interest groups’ think. When FOFA and FDSs first came in, I had inherited clients who had investments in each camp. Super had built in Comms and Investmnet wrap had %based adviser fee. The % fee was set at the same level as the Comms. They were happy to have Comms paid from the product manufacturer but said they thought they wouldn’t have to pay a fee. When I tried to explain that their total cost was approx the same under each option, they didn’t want to know about it, they just didn’t want to pay a visible fee. If it came to me as a comm they would’ve been fine with it. It will be interesting to see the damage that will be done to many ordinary Australian households when something similar happens with insurance. People are happy for advisers to be paid via Comms but won’t pay a fee. If ASIC, industry groups and Adele Ferguson thinks there are issues now with insurance wait until people really start to take up direct products from banks and the TV or group cover from Union Super Funds
Too many miss the point on this subject – ASIC included sometimes. How on earth can anyone support a “fee for service” regime that isn’t invoiced at least annually? When money is taken by a third party and paid to a second party from the first party’s account, that’s just the same as a commission that the client has no control over. Until this industry gets up with professional standards we’ll be left with the Andrews standing on the sidelines complaining about “bagging” – when it’s actually “improving” that’s needed.
While I agree that taking a fee and not providing the service is wrong. At least with existing advice fees (either percentage based or flat fee) the client sees them and has the ability to turn them off – not matter if they are pre or post FOFA. The bigger issue is where there are built in Comms on super or investment products that clients don’t see. Even if there is no adviser these fees continue to get paid to the AFSL holder or retained by the product manufacturer. This is the area that should’ve been addressed by the legislation, but it’s just another example that our parliamentarians don’t understand the industry that they are trying to over regulate. There are large books of business out there with legacy products that don’t have to report anything to their clients, don’t have to see them and the money keeps coming in.
The circus that is the financial planning industry just keeps getting more & more ridiculous. Stifled by compliance, hamstrung by Dudley do rights who all think they are the most holy adviser out there all the while everyone ignoring the glaringly obvious things that must change for this industry to get any respectability. Cost are too high, compliance is a joke. Dealer groups need to be axed & advisers need a cheap operating set up. Clients are sick & tired of these SOA’s/ROA’s, authorities, legal jargon, lengthy disclaimers & thevindustries nonsense. It’s why a financial planner has the credibility of a car salesmen right now.
That’s exactly right Steve. Governments could never bring themselves to cut red tape in this area but consumers and advisers are being crushed under the weight of compliance for no benefit.
If you have conflicts you will have car salesmen, if you keep loading up on compliance you will have no profession.
Remove the conflicts, remove the compliance and watch the profession flourish.
Stop bagging the industry… Seriously…
Anyone who has ever worked as a financial adviser knows this has been happening for ages… opt in/FDS was designed to stop this and will for NEW clients.
This is why it is so disgusting that opt in has been grandfathered… those who set up clients years ago on an ongoing % based fee arrangement can continue to never actually speak to them again and keep banking $$$…
If you’re going to implement opt in… at least make it across the whole playing field.