The Royal Commission into Banks and Financial Services has entered its 11th day today. The next two weeks will focus on companies that give financial advice to consumers.
The Counsel assisting Rowena Orr, QC – who is helping Commissioner Hayne – said: “This round of hearings will explore some of the issues that directly impact on Australians in their dealings with the financial advice industry, including the charging of fees for financial advice that is not provided or not provided in full, which we will refer to as ‘fees for no service’.”
According to Ms Orr’s figures, there are 25,386 financial advisers in Australia working for 749 advisory groups in over 8,000 practices. That sounds like a lot of advisers, but most of them work for a large bank.
Ms Orr said that by the end of 2017, the big bank banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ), as well as AMP Limited (ASX: AMP), collectively have a market share of 48% of industry revenue.
Around 30% of the financial advisers on ASIC’s register work for one of the major banks and 44% operated under a licence of a top 10 financial institution. Around 35% of the 25,386 advisers are bachelor level degree qualified.
So far, $383 million in compensation has been paid to consumers because of inappropriate or dodgy advice. Of the $383 million, $117 million has been paid by Commonwealth Bank, $49 million has been paid by ANZ, $41.3 million has been paid by NAB, $4.7 million has been paid by AMP and $3.2 million has been paid by Westpac.
The big four banks and AMP have already admitted some possible misconduct.
AMP said that there could be over 14,000 clients who were charged for advice, but no advice was ever given. Some clients were charged fees even though their adviser had departed. Some clients were charged when an adviser’s authorisation was terminated.
ANZ said over 10,000 clients paid for annual reviews but these were never provided. ANZ said some of its entities deducted almost $1 million in fees for ongoing services from nearly 3,000 members of managed investments but these services were never received. ANZ deducted fees at a rate higher than quoted in the service agreement.
Commonwealth Bank said that $118 million has been paid where it charged fees even though no service was provided. Australia’s biggest bank also admitted it has made 25 breach notifications to ASIC and a further 20 for serious compliance concerns. It has paid $96 million for poor financial advice or adviser misconduct.
NAB said that over 25,000 clients were charged fees for no service, $6.6 million has been paid for adviser service fees and $35 million to 220,000 clients for plan service fees. NAB disclosed that 68 advisers had serious compliance concerns, this has resulted in $38 million being paid.
Westpac said that BT Financial Group has paid $3.4 million to over 400 clients for fees for advice that wasn’t provided. Westpac also said that 22 advisers have been reported to ASIC. A further 15 have been identified with $12.5 million being paid to 200 clients.
The next two weeks is likely to be a gruelling and bruising experience for the big banks and AMP. If there is a lot more ‘dodgy advice’ evidence to come then the public could lose even more confidence in the large-end-of-town when it comes to financial advice and may turn to other providers.
Here at Rask Media, we believe the relationship between an adviser and client should be of the highest ethical standards as the people who seek advice are in need of help. To hear repeated stories of misconduct is bitterly disappointing and needs to change if we are to restore confidence in our industry.
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