ANZ, NAB, CBA, Westpac and AMP licensees have been obliged to pay approximately $23.7 million of fee refunds and compensation to over 27,000 customers for charging advice fees without actually providing financial advice.
The figures have been revealed today by the Australian Securities and Investments Commission (ASIC), which released report "Report 499 Financial advice: Fees for no service", which provides an update on ASIC's work to address financial institutions' and advisers' systemic failures, over a number of years, to provide ongoing advice services to customers who paid fees to receive those services.
It said further reviews were 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," it 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."
The regulator said it had commenced several enforcement investigations in relation to the conduct but conceded that most of the failures outlined in the report occurred before the commencement of the Future of Financial Advice (FOFA) reforms.
It said the changes made by those reforms were a significant factor in the identification of the failures, and also substantially reduced the likelihood that the type of systemic failures described in this report would occur in the future.
"In particular, the requirement to now provide an annual fee disclosure statement to the client, and the requirement for the client to 'opt-in' to the advice relationship every two years, will significantly reduce the risk of fees being charged without any advice service provided," the ASIC report said.
Comments
Me thinks that if ASIC had been given the resources to police this many years ago we would not have this situation now as it would not exist.
What a load of nonsense - seriously believe that ASIC (the head clowns who are Labor appointees) are against anyone other than the ISA surviving in this field.
About time they investigate the Millions in fees per annum that ISA member are losing without ANY disclosure
Imagine in adviser land out there, there are client books in the thousands where fees are paid ( not trails) and that number of clients can't possibly been seen by small practice, is this edict going to come down the line to smaller practices not just the banks? Is this how they are going to eradicate trails?
Yes Phil, you're right. Does happen in plenty of small practices as many of them simply bought a book for some additional recurring revenue and clients to work though.
Doesn't make it ok to be charging clients ongoing annual fees when you aren't actually servicing them.... Any business, big or small, should be charged for the advice they provide on an ongoing basis... If they don't provide anything, cut off the fees. If the business cant survive without charging ongoing fees to people they don't speak to, they shouldn't be in operation/existence.
There is hardly any difference between a 'fee' or 'commission' if the client is getting nothing for what they are paying.
It's a good question, Phil. The way I see it unfolding is that as a result of this, eventually the product providers will start to push clients out of old trail paying product and into their new fee for service products with lower fees. Keeps ASIC happy and quite rightly takes care of the problem of lazy advisers sitting on trail books where they couldn't tell you the name or address of half the client base.
Its a massive change if it occurs although its been in transition but this speeds it up. Adviser book valuations in 10 years - dollar for dollar, like an accounting business in my view. And current profitability for those big books drops massively until the business can transition to a new model.
Let's hope so... Some of the most inept people I have ever seen have built a 'successful' business from simply buying old books and sitting on the trail. Hire someone to answer the phones for you then play golf all day under the guise of being a financial adviser.
As Felix said, wouldn't know the name or address of most of the book. Give all of us doing the right thing a bad name.
Just had a brainwave - if we didn't have to document every breath a client made with an SOA, ROA or whatever, we might actually be able to service all these clients properly, rather than treating them like a potential compliance breach.
Yep agree Gez, see 500 clients at $300 per hour, good mix of general and personal advice given the client can act on, no SOA etc, many of them will agree to more comprehensive advice - pay for you to work that out, present in a simple 3-5 page form - all of sudden you have a professional advice business! But these current books won't be transitioned that way - too much hard work! See 4-5 clients per day or play golf!
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