Commonwealth Bank-owned groups Count Financial, Financial Wisdom and Pathways excluded customers from getting compensation if they received an offer of an annual review, even though their agreement required an actual review, ASIC said.
‘Fair exchange of value’
Meanwhile, some of the institutions had failed to develop customer-centric ways to compensate customers, ASIC said – for example, by requiring customers to opt in to the review program, or assessing customers based on whether there had been a “fair exchange of value”, rather than whether advice had been provided.
Kenneth Hayne’s banking royal commission revealed that in 2016, National Australia Bank had tried to negotiate a different methodology with ASIC, requiring it to compensate customers for fees for no service only if there was not a “fair exchange of value”. ASIC rejected this approach.
The delays meant fees-for-no-service issues would not be resolved until at least 2021, ASIC said.
AMP said its reviews would be completed in the second half of 2021, while NAB would not complete its review of aligned dealer groups until late next year. Westpac was yet to develop a methodology or time line to identify affected customers of its aligned dealer groups, Magnitude and Securitor, ASIC said. Similarly, NAB was yet to come up with a methodology or a time line for customers of its wealth management business JBWere.
In other cases, such as ANZ and Macquarie, the calculation of interest was an issue, with both proposing to pay less than the required Reserve Bank of Australia cash rate plus 6 per cent.
ASIC commissioner Danielle Press said the big four banks, AMP and Macquarie had taken too long to conduct these reviews.
“These reviews have been unreasonably delayed. ASIC acknowledges that they are large-scale reviews – they relate to systemic failures over long periods, with reviews going back six to 10 years and cover 36 licensees from the six institutions that currently authorise more than 7000 advisers,” she said.
“However, we believe the institutions have failed to sufficiently prioritise and resource their reviews, particularly as ASIC advised them to commence the reviews in mid-2015 or early 2016.”
Banks dragging their feet
CLSA banking analyst Brian Johnson said the banks had been extremely slow in addressing the fees-for-no-service issue and ASIC would need to step in to speed up the process.
“Banks seem to have initially pretended it wasn’t a problem and then denied the extent of the problem. Seemingly they have been unwilling to resolve this issue until relatively recently,” he said. “It’s going to be a long process unless there is regulatory intervention from ASIC.”
Mr Johnson said banks had been reluctant to act, partly because the amount involved was relatively small compared to their profitability. “It’s a big issue for their brands but financially it’s not that big a deal at all,” he said.
Adding to the problem is the complexity involved, particularly when it comes to identifying customers affected by aligned dealer groups because these are run as independent businesses.
Complex and wide-ranging
An AMP spokeswoman said in a statement that remediation was a key priority for AMP this year and most compensation methodologies had now been agreed with the regulator.
A CBA spokesman said the bank had completed reviews for its salaried advisers. “Our priority now is to work with our aligned planners and complete all remaining work,” he said.
A Westpac spokesman said: “We agree it is unacceptable for customers to pay for a service they didn’t receive and we know we’ve got to get it done as quickly as possible. We intend to have completed the review of customers of our salaried advisers around mid this year.”
A NAB spokeswoman said under its new leadership the bank had “a renewed sense of urgency about the issues it confronts and is focused on customer outcomes”.