NAB has announced a net increase of $380 million for customer-related remediation, of which $245 million is for wealth-related matters while $135 million is for banking-related matters. There has also been a net increase in payroll remediation provisions of $128 million, while the bank expects an impairment charge of $134 million for property-related assets.
Wealth-related charges stem from non-compliant advice given to wealth customers, along with adviser service fees charged by NAB Financial Planning. There has also been a general increase for ongoing liabilities associated with parts of the existing wealth remediation program that NAB retains responsibility for following the sale of MLC to IOOF. The charges will reduce NAB’s common equity tier 1 capital ratio by around 15 basis points.
All earnings associated with MLC will also transfer to discontinued operations from 2H20.
If ASIC seriously wants to know why advice costs are so high and advisers are wary of scaled advice, a closer look at these bank remediation programs would be a great place to start.
In many cases banks are paying “remediation” for service that was actually delivered. However ASIC is insisting on pedantic forms of documentation to “prove” the service was delivered, sometimes going back as far as 10 years. (Beyond the normal document retention limit of 7 years). However actually asking the client if they received the service and are happy with the value provided, is not an acceptable form of “proof”.
The message ASIC is sending is that it is not enough to provide good quality service at a fair price that the client is happy to pay for and puts them in a better position. On top of this you have to create and keep voluminous records of the most minor details, in very precise formats, and potentially keep them forever. And you have to be willing to put your business on hold to dig all these records out whenever ASIC feels like going on a persecution rampage. All these extra “ASIC protection” overheads come at a cost, which unfortunately has to be passed on to clients.
Very true. ASIC’s big win of forcing the big four banks who were trying to protect their reputation to pay out immense amounts has had a chilling effect on the whole industry. What percentage of licensees would survive that level of auditing? 5%? 10%?
Hence compliance departments justifiably going mad, pushing up costs and reducing the time spent on actual advice.
Add to this the ASIC view (rightly or wrongly) that client reviews are an annual document-generation activity. So smaller clients are effectively shut out, raising the bar of ‘viable’ clients having to share the rising level of fixed costs to operate a practice.