ASIC’s bombshell report on “advice service failures” is a new low for an already scandal-plagued institutional sector.
There are many instances where government intervention into the financial services industry is overzealous and unwarranted. ASIC investigating and punishing the institutions for “charging advice fees where no advice was provided” is not one of them.
Yesterday, the corporate regulator released an update on the Wealth Management Project – its welcome but belated investigation into the advice operations of CBA, AMP, NAB, ANZ, Westpac and Macquarie – which found tens of thousands of consumers have been charged a fee for advice that was never provided.
ASIC calls this a “fee-for-service failure”. I call it theft.
This is not just a form of conflicted remuneration. No, this is a far more disgusting and egregious breach of ethics than that, whereby the banks have created for themselves a revenue stream where they provide no value to the consumer whatsoever, leaving them only with a diminished pocketbook.
It is quite literally a shakedown. At least with a product commission the client is ultimately placed in a real product with real benefits – and in the case of insurance, a very important product at that.
But arguably even more repugnant than the behaviour itself has been the response from the Australian Bankers’ Association, which describes itself as a pro-consumer organisation on its website.
"It is disappointing that the administrative errors responsible for this problem were allowed to occur,” ABA executive director for retail policy Diane Tate said in a statement issued yesterday.
Digging a further hole, Ms Tate additionally pointed to “problems with legacy manual systems and processes”. Or, in other words, a glitch in the matrix.
Firstly, I find it very hard to believe that it was an “administrative error” that saw clients explicitly charged, for example, for “retention of client records” - a function that is already a legal compliance requirement for service providers.
I think it is far more likely this is not an error at all, but a deliberate and lucrative lie designed by well-paid contract lawyers to hoodwink consumers.
But even if it was an “administrative error” it was one that was repeated tens of thousands of times and became a profit centre for the institutions at the expense of their all-too-dispensable customers. They could have updated their technology long ago but it seems there was a very real incentive to ensure that these legacy systems remained in place. Shifting the blame and attempting to spin this as an unfortunate accident is a cowardly and insipid response that shows little contrition and reveals just how rotten the insto culture really is.
The report invites us to consider the fact that many of the relevant licensees under the CBA, AMP, ANZ, NAB, Westpac and Macquarie umbrellas have now implemented better monitoring systems and have returned, or agreed to return, $23.7 million in total.
The institutions have also been very vocal in supporting the government’s new mandated professional standards for the industry, even footing the bill for the establishment of a new statutory body.
Well frankly I don’t find that comforting; I find it nauseating.
Just like the widespread commissions ban, the new professional standards that the instos have warmly welcomed will be applied by force to every member of the profession even though the ethical breaches were performed by just a few.
That suits the institutions just fine, as they can absorb the costs of re-training their staff, do dodgy deals with associations and education providers and pump out rosy-sounding press releases announcing their newfound ethics.
The pot of compensation money – which ASIC says could reach $178 million by the end of this process – will also largely be water off a duck’s back, more likely to come from shareholder returns that are never passed on or increased customer fees rather than from exec bonuses or salaries of those that created this mess.
Meanwhile, they retain their competitive advantage and small business advisers and non-aligned licensees will have to struggle to comply, despite it not being their problem in the first place.
This publication has often been hard on the corporate regulator for unfairly targeting smaller players or its anti-adviser bias.
But ASIC should be praised for its courageous investigation of this matter and in seeking justice for these aggrieved consumers in the face of what was probably daunting legal defences.
Let’s hope it keeps its focus.
Aleks Vickovich is a contributing editor at ifa
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