When Federal Treasurer Jim Chalmers hands down the budget on 14 May, the pressing need for fiscal responsibility is likely to trump spending programs.
In an era of fake news, it’s getting more difficult to separate fact from fiction. Yet it’s imperative we do so because the consequences for being deceived can be enormous.
Fees-for-no-service review wraps up, with $4bn price tag for top banks
Four years after the Hayne Royal Commission’s report into bad practices by Australia’s financial services industry, six of the largest banks have squared up their bills over the massive fees-for-no-service scandal, the banking regulator announced, with total customer compensation set to reach $4.7 billion.
Big-four banks ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac, as well as AMP and Macquarie, have paid or agreed to pay the compensation as part of remediation programs resulting from two major Australian Securities and Investments Commission reviews into banks’ failure to deliver advice services to fee-paying customers and their policies for when advisers provide noncompliant advice.
ASIC launched the reviews in 2015 as part of its Wealth Management Project focussing on the conduct of the largest financial advice firms, including the advice arms of AMP, ANZ, CBA, NAB and Westpac, as well as some of the banks’ product issuers. It found systemic failures over yearslong periods to ensure customers received the services they paid for.
“ASIC’s compensation for financial advice-related misconduct project has shone a light on the advice fees that customers are paying and the services they should be receiving in turn,” ASIC Commissioner Danielle Press said. “The subsequent programs have resulted in very significant remediation payments to affected customers.”
Of the $4.7 million paid or offered through the programs, about $270 million was for failure to properly oversee advisers or deal with noncompliant advice, with the rest covering fees-for-no-service misconduct. NAB paid the most compensation, totalling nearly $1.5 billion, followed by CBA with a $1.1 billion price tag. Macquarie was on the hook only for fees-for-no-service violations, totalling $4.6 million.
The compensation went to nearly $1.5 million customers who paid fees for no service and about 12,000 who received noncompliant advice. The programs are now “substantially complete”, the regulator said.
Key reforms enacted
In commencing the no-fees-for-service remediation program in April 2015, ASIC said it had learned of multiple instances of Australian financial services licensees charging customers fees for financial advice that was never provided. Three months later it announced its plan to review how effectively the largest financial services institutions oversee their advisers and how they handle advisers offering noncompliant advice, focussing on the period from 2009 through June 30, 2015.
The fees-for-no-service scandal became a key focus of the Hayne Royal Commission, which began investigating misconduct in the banking, superannuation and financial services industry in December 2017 and filed its final report February 1, 2019, excoriating the banks and their management for their “dishonesty” and “greed” in collecting fees from clients who had not received services. The report also asked ASIC to step up its investigation into the breaches.
Most of the failures targeted in ASIC’s reviews occurred prior to the enactment of the Future of Financial Advice reforms, the regulator said in previous updates, noting that the changes made by those reforms helped identify the failures and substantially reduce the likelihood that such systemic failures will occur in the future.
In particular, it said, post-reform requirements that banks provide clients with an annual fee disclosure statement and require clients to opt in to the advice relationship every two years significantly lower the risk of fees being charged without any advice service provided.
“While this final update on remediation figures draws a line under this program of work – following eight years of addressing financial institutions’ and advisers’ failure to provide ongoing services to fee-paying customers – we will continue to monitor institutions’ processes to complete ongoing work in this area,” Press said.
