CBA exits aligned advice, remediation piles on

CBA intends to stop providing licensee services through Financial Wisdom by June 2020 and will proceed with an assisted closure. The group said it will support advisers through a transition to alternate arrangements, including self-licensing or joining another licensee.

Countplus shareholders this week overwhelmingly voted in favour of the business acquiring Count Financial, while CBA has allowed its CFP Pathways advisers to transition to a self-licensing arrangement or move to another licensee.

The estimated pre-tax costs supporting the Financial Wisdom and CFP-Pathways businesses, advisers and customers through the transition, as well as other internal project costs, is around $26 million. Both businesses resulted in a post-tax loss of $11 million for FY19, excluding remediation provisions.

CBA said it will continue to manage customer remediation arising from past issues at Financial Wisdom.

As at 30 June, CBA held a provision of $534 million in relation to aligned advice remediation, including $251 million for customer fee refunds, $123 million for interest on fees subject to refunds and $160 million for costs to implement the remediation program.

The group’s total customer remediation, including aligned advice, surged to $918 million for the year, a dramatic change from $52 million in FY18. Total operating expenses for the year came to $11.2 billion.

“A large team is also working on remediation and we have expensed approximately $1 billion this year to cover refunds, interest and program costs – due primarily to issues in our financial advice businesses – to ensure that customers are appropriately and efficiently remediated,” chairman Catherine Livingstone noted in her message to shareholders.

CBA has, however, said it will be continuing to provide advice to its customers through Commonwealth Financial Planning (CFP). Following an ASIC investigation into the subsidiary charging ongoing fees, the bank added that CFP is moving into a new model where customers will pay for advice once they have received it.

The bank also posted its results for the full year, with the group’s profit coming to $8.3 billion for FY19, down 8 per cent from the prior year. Cash NPAT was $8.4 billion, down 4.7 per cent.

Total operating income was $24.4 billion, slipping 2 per cent from FY18, while the bank saw a net interest margin of 2.1 per cent, down five basis points. The group cited lower volumes of initial advice fees and the removal of ongoing advice fees in relation to its financial planning businesses for the decline in income.

CBA’s wealth management division generated a cash NPAT of $160 million, plunging by 37 per cent from the prior year. The retail bank, which includes Commonwealth Financial Planning, saw its cash NPAT drop by 12 per cent to $4.2 billion for FY19.

The bank has dusted off its hands from aligned advice in response to significant regulatory and structural changes to the sector in the aftermath of the royal commission.

CBA is still yet to exit the last of its remaining wealth management and mortgage broking businesses as it committed to in March. The last pieces to depart are Colonial First State, Aussie Home Loans and CBA’s 16 per cent stake in Mortgage Choice.

CBA recently completed the $4.2 billion sale of Colonial First State Global Asset Management to Japanese Bank Mitsubishi UFJ.

Chief executive Matt Comyn said reducing the bank’s portfolio of businesses and simplifying its operations would allow it to focus on its core banking businesses, which delivers 95 per cent of its profit.

“Reducing the complexity of our business and our processes is helping to improve customer and risk outcomes. It also makes it easier for our people to serve our customers,” Mr Comyn said.

“Another benefit of simplification is that it allows us to reduce costs.”