ASIC says under additional licence conditions imposed on Commonwealth Financial Planning Ltd and Financial Wisdom Ltd by the Australian Securities and Investments Commission, CBA will review all advice given to customers of five former representatives. CBA will pay compensation where customers have suffered loss.
As at 10 January 2018, CBA has reported to ASIC that approximately $1.9 million of compensation is due to customers of the five advisers. Compensation is likely to increase as CBA reviews further customer files. CBA recently wrote to over 3,500 customers of the five advisers informing them their advice was being reviewed. Following completed reviews CBA has issued assessment outcome letters to over 1,000 customers. CBA will continue to issue assessment outcome letters and compensation offers to affected customers between now and 31 March 2018.
ASIC appointed KordaMentha Forensic (KordaMentha) to complete a compliance review under the additional licence conditions. KordaMentha determined that CBA should review advice given by 16 potentially high-risk advisers, and has now reviewed and is satisfied with the processes that CBA used to:
- select samples of advice given by the 16 advisers for review
- review the appropriateness of advice given by the 16 advisers
- calculate whether any inappropriate advice given by the 16 advisers resulted in customers losing money of suffering loss, and
- conclude that all of the customers of five of the advisers should be reviewed in the compensation program and that no further review is required for 11 advisers.
The current round of compensation is in addition to $4.97 million including interest already offered to customers of different advisers under the additional licence conditions compensation scheme, as reported on in KordaMentha’s December 2016 compliance report.
For more information see the KordaMentha Compliance Report Part 3.
Background
In August 2014, ASIC imposed additional conditions on the Australian Financial Services licences of Commonwealth Financial Planning Ltd and Financial Wisdom Ltd, with the licensees’ consent. Under the additional licence conditions, ASIC appointed KordaMentha Forensic to assess the adequacy of CBA’s 2012 review of potentially high-risk advisers.
KordaMentha’s Identification Report (December 2015, available from the ASIC website) reported that the two licensees had taken reasonable steps to identify potentially high-risk advisers in 2012, but after identifying them, did not adequately review 17 of them to determine whether their clients should be included in a review and compensation program.
KordaMentha later determined that one of the 17 advisers did not need to be reviewed because the adviser had not, as CBA had previously informed KordaMentha, advise a high number of clients to invest 25% or more of their portfolios in property investments.
To address CBA’s failure to adequately review the remaining 16 advisers, KordaMentha’s Identification Report and subsequent work set out the ‘Additional Processes’ that the Licensees were required to take for the advisers:
- A review of a sample of six client files for each of the advisers to determine any instances of inappropriate advice that led to loss. For advisers where CBA identified no inappropriate advice with loss, KordaMentha did not require any further review. For advisers where CBA identified inappropriate advice with loss, step (ii) was required.
- A review of a further 25 files of the adviser. If no further instances of inappropriate advice with loss were identified, KordaMentha did not require the Licensees to take any further action or review for that adviser. If, after step (i) and (ii) (31 files reviewed), CBA identified that an adviser had provided between two and five instances of instances of inappropriate advice that led to loss, KordaMentha’s default position was that step (iii) was required – that CBA should review a further 25 files of that adviser. If six or more instances on inappropriate advice with loss were identified, CBA was required to implement the full compensation program for all of the adviser’s clients.
- A review of a further 25 files.
- If, after step (i) or (ii) or (iii) (between six and 56 files reviewed per adviser), CBA identified a total of six or more instances of inappropriate advice with loss, CBA was required to implement the full compensation program for the all of the adviser’s clients.
As a result of these steps:
- KordaMentha does not require CBA to conduct any further review of 11 of the 16 advisers. KordaMentha concluded that those 11 advisers have been adequately reviewed by CBA and should have no further review under the additional licence conditions.
- KordaMentha requires CBA to apply the full review and compensation program to all customers of the remaining five advisers, which includes reviewing their advice, issuing review outcome letters including compensation offers if applicable, and offering customers up to $5000 for an independent assessment of their advice.
- Any customers who CBA identifiedin steps (i), (ii) or (iii) as having lost money through inappropriate advice, from any of the 16 advisers, will be compensated.
Previous KordaMentha reports on the additional licence conditions
The report released today is KordaMentha’s fourth report under the additional licence conditions. Previous reports are published on ASIC’s website at the following links:
- Comparison Report (April 2015): REP 431
- Identification Report (December 2015): REP 462
- Compliance Report Part 1 & 2 (December 2016): REP 504
Next steps
ASIC will continue to report publicly on compensation under the additional licence conditions. ASIC will publish Compliance Report Part 4 when KordaMentha completes its assessment of CBA’s compliance with the additional licence conditions.
