$200m+ Refunds Due From Major Financial Advisory Firms – ASIC

These institutions’ total compensation estimates for these advice delivery failures now stand at more than $204 million, plus interest. As foreshadowed in ASIC’s Report 499 Financial advice: fees for no service (REP499), ASIC can now provide an update on compensation outcomes to date.

Background

In October 2016 the Australian Securities and Investments Commission (ASIC) released REP499. The report covered advice divisions of the big four banks and AMP and described systemic failures to ensure that ongoing advice services were provided to customers who paid fees to receive these services, and the failure of advisers to provide such services. The report also discussed the systemic failure of product issuers to stop charging ongoing advice fees to customers who did not have a financial adviser.

At the time of the publication of the report compensation arising from the fee-for-service failures reported to ASIC was approximately $23.7 million, which had been paid, or agreed to be paid, to more than 27,000 customers.

Since REP 499 a further $37 million has been paid or offered to more than 18,000 customers. In addition, the institutions’ estimates of total required compensation for general and personal advice failures have increased by approximately 15% to more than $204 million, plus interest.

The table provides, at an institution level, compensation payments and estimates that were reported to ASIC as at 21 April 2017. Since that date compensation figures have continued to increase.

Group	Compensation paid or offered	Estimated future compensation   (excludes interest)	Total (estimate, excludes   interest)
AMP	$3,816,327	$603,387	$4,419,714
ANZ	$43,818,571	$8,613,001	$52,431,572
CBA	$5,850,827	$99,786,760	$105,637,587
NAB	$4,641,539	$385,844	$5,027,383
Westpac	$2,670,479	Not yet available	$2,670,479
Total (personal advice   failures)	$60,797,743	$109,388,992	$170,186,735
NULIS   Nominees (Australia) Ltd (1)	Nil	$34,720,614	$34,720,614
Total (personal and general   advice failures)	$60,797,743	$144,109,606	$204,907,349

Source: Data is based on estimates provided to ASIC by the institutions and will change as the reviews to determine customer impact continue.

(1) For details, see the section on NAB below.

Key compensation developments

AMP

• AMP’s total compensation estimate decreased from $4.6 million to $4.4 million as AMP reviewed customer files and data to determine compensation required, and revised its previous estimates.

ANZ

• The total compensation estimate has increased from $49.7 million to $52.4 million due to the expansion of existing compensation programs and the identification of further failures by authorised representatives of two ANZ-owned advice businesses:
  • Financial Services Partners Pty Ltd; and
  • RI Advice Group Pty Ltd.
• The largest component of ANZ’s compensation program relates to fees customers were charged for the Prime Access service, where ANZ could not find evidence of a statement of advice or record of advice for each annual review period.
• In addition, ANZ found that further compensation of approximately $7.5 million is required to be paid to ANZ Prime Access customers for ANZ’s failure to rebate commissions in line with its agreement with customers. This compensation has not been included in the figures in this media release because it does not relate to a failure to provide advice for which customers were charged, but is noted for completeness and transparency.

CBA

• There has been no substantial change in CBA’s compensation estimate, which remains at approximately $105 million, plus interest, the majority of which relates to Commonwealth Financial Planning Ltd (CFPL). The compensation estimate for CFPL results from a customer-focused methodology whereby, as well as providing refunds where the adviser failed to contact the client to provide an annual review, CFPL will provide fee refunds to customers where:
  • the adviser offered the customer an annual review and the customer declined, or
  • the adviser tried to contact the customer to offer a review, but was unable to contact the customer.
• Some of the other licensees or banks covered by the ASIC fees-for-no-service project have not, at this stage, adopted a similar customer-focused approach to the situation in which a service was offered but not delivered.  ASIC continues to discuss the approach to this situation with these banks and licensees.

NAB

• Since the publication of REP 499, by 21 April 2017, NAB reported to ASIC the further erroneous deduction of adviser service fees for personal advice from more than 3,000 customers of the following licensees:
  • Apogee Financial Planning Ltd: $11,978, from 11 customers;
  • GWM Adviser Services Ltd: $179,446, from 290 customers;
  • MLC Investments Ltd: $9,755, from six customers;
  • National Australia Bank Ltd: $2,777, from seven customers; and
  • NULIS: $173,120, from 3,310 customers.
• In addition, the table shows the expected compensation of approximately $34.7 million by NAB’s superannuation trustee, NULIS Nominees (Australia) Limited (NULIS), for two breaches involving failures in relation to the provision of general advice services to superannuation members who paid general advice fees (other fees referred to in this release relate to personal advice). As announced by ASIC on 2 February 2017 ASIC has imposed additional licence conditions on NULIS following these and another breach: ASIC MR 17-022. The failure was by MLC Nominees Pty Ltd (and MLC Limited for the first of the two breaches).  Whilst on 1 July 2016 the superannuation assets governed by MLC Nominees were transferred by successor fund transfer to NULIS, and on 3 October 2016 NAB divested 80% of its shareholding in the MLC Limited Life Insurance business, accountability for this remediation activity (including compensation) remains within the NAB Group. The estimate of customer accounts affected has increased from approximately 108,867 to 220,460 since REP 499, reflecting the second of two breaches.

Westpac

• REP 499 noted that Westpac had identified a systemic fees-for-no-service issue in relation to one adviser only, with compensation of $1.2 million paid in relation to those failures.
• Following further ASIC enquiries, Westpac subsequently clarified that it has paid further compensation of approximately $1.4 million to 161 customers of that adviser and 14 further advisers, in respect for fee-for-no-service failures in the period 1 July 2008 to 31 December 2015.

Next steps

ASIC will continue to monitor these compensation programs and will provide another public update by the end of 2017.  In addition ASIC will continue to supervise the institutions’ further reviews to determine whether any additional instances are identified of fees being charged without advice being provided.

MoneySmart

Customers who are paying ongoing advice fees for services they do not need can ask for those fees to be switched off. Customers who have paid fees for services they did not receive may be entitled to refunds and compensation, and should lodge a complaint through the bank or licensee’s internal dispute resolution system or the Financial Ombudsman Service.

ASIC’s MoneySmart website has a financial advice toolkit to help customers navigate the financial advice process and understand what they should expect from an adviser. It also has useful information about how to make a complaint.