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The enforceable undertaking (EU) comes as a result of an ASIC investigation that found clients of CBA subsidiaries Commonwealth Financial Planning (CFPL) and BW Financial Advice (BWFA) were charged for annual reviews in ongoing service packages that were not then provided.
“Both CFPL and BWFA have acknowledged in the EU that ASIC’s concerns were reasonably held,” the regulator said in a statement.
Under the EU, CFPL and BWFA will make a community benefit payment of $3 million in total.
The CBA subsidiaries will also have to provide attestation from senior management that changes to compliance systems and processes have been made, are “reasonably adequate to track CFPL’s contractual obligations” and that reasonable steps have been taken to remediate affected customers.
In a separate statement by CBA, chief executive Matt Comyn said that the bank recognised it had “failed customers in our advice businesses over the past decade”.
“These failures have resulted in a range of regulatory actions including the imposition of licence conditions and remediation programs,” the CEO said.
“This is unacceptable and we owe our customers an apology for letting them down. Providing quality financial advice is critical for our customers.
“Next week, the royal commission will hear more about issues in financial advice where we have failed our customers and we need to listen and learn from what we hear.”
Commenting on the EU, ASIC deputy chair Peter Kell noted that the EU followed a similar one with ANZ, announced on 6 April.
“Our report into Fees For No Service in October 2016 identified the major financial institutions’ systemic failures in this area, and called for fair compensation to be paid to customers who did not receive the advice reviews that they were promised and paid for,” Mr Kell said.
“These failures show that all too often the financial institutions prioritised revenue and fee generation over the delivery of advice and services paid for by their customers.”
Royal commission update
Fees for no service is a key aspect of the second round of hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
While the first round of hearings focused on consumer lending, including mortgage broking, the second round of hearings is looking at financial advice.
The hearings, which began on Monday (16 April) and will run until next Friday (27 April), will cover a range of topics, including:
- the charging of fees for financial advice that is not provided or not provided in full (“fees for no service”);
- the provision of inappropriate financial advice;
- instances of improper conduct by financial advisers, including misappropriation of customer funds; and
- disciplinary and regulatory regime for dealing with misconduct by financial advisers (among other topics).
The commission outlined that in the 12 months to July 2016, approximately 2.3 million Australians aged 18 and over received financial advice from a financial planner, noting that the sector was estimated to be worth $4.6 billion in revenue in the year 2015–16.
Rowena Orr, counsel assisting the royal commission, outlined that there were 25,386 financial advisers registered in Australia and that the four major banks and AMP collectively held a market share of about 48 per cent (by industry revenue as at late 2017).
About 30 per cent of the total number of financial advisers on ASIC’s register work for one of the major banks, Ms Orr continued, adding that approximately a quarter of industry revenue was from loan and investment advice (i.e. determining the most suitable loan product and financial asset allocation for a consumer).
During the first day of the second round of hearings, it was revealed that all four major banks and AMP admitted that there were possible breaches of the law in relation to fees for no service, including instances where customers where charged a fee for service despite no adviser being allocated to them or for annual reviews that never took place.
Further, Ms Orr revealed that a “significant proportion” of submissions the commission had received so far related to “inappropriate advice” received from financial advisers, with “many” referring to financial adviser providing advice “encouraging Australians to engage in lending they are not capable of servicing over the long term”.
She outlined that some submissions related to advisers “falsifying documentation to support higher levels of lending or more aggressive investment strategies”.
Other themes from the public submissions included inappropriate advice in relation to investing savings and funds borrowed against private property where the customer had requested conservative or low-risk investments.
The royal commission will release an interim report by 30 September and a final report by February 2019.