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Tuesday 7 August 2018

18-229MR Update on financial advice institutions' fees for no service refund programs

AMP, ANZ, CBA, NAB and Westpac have now paid or offered customers $222.3 million in refunds and interest for failing to provide advice to customers while charging them ongoing advice fees. This represents a further $6.4m in payments and offers from these institutions since the last ASIC media release (17-438MR) on the fees for no service (FFNS) project, which provided compensation figures as at 31 October 2017.

In addition, ASIC is overseeing FFNS remediation programs by other Australian financial services (AFS) licensees that have identified potential FFNS failings, including Bendigo Financial Planning Ltd, Police Financial Services Ltd (trading as BankVic), State Super Financial Services Australia Limited (trading as StatePlus), and Yellow Brick Road Wealth Management Pty Ltd. The total amount now paid or offered to customers across both groups of licensees is $259.6m.

ASIC is also aware that five AFS licensees or institutions have provisioned for future remediation payments, with four of these to date providing to ASIC amounts for future remediation (see below in notes). If all of these provisions are paid in full, FFNS remediation may exceed $850m.

The table provides compensation payments and estimates reported to ASIC as at 30 June 2018. Some institutions' total estimates have changed since ASIC’s previous media release as they have further investigated the compensation required and, in some cases, identified additional failures needing remediation.

Group Compensation paid or offered (1) Estimated future compensation (2) Total estimate AMP $5,010,637 $370,000 (3) $5,380,637 ANZ $50,793,257 $8,443,300 (4) $59,236,557 CBA $118,040,178 $25,274,717 $143,314,895 NAB $5,690,797 $1,019,623 (5) $6,710,420 Westpac $6,896,237 Not yet available (6) $6,896,237 Bendigo $0 $2,500,000 $2,500,000 StatePlus $37,223,999 Not yet available (7) $37,223,999 Yellow Brick Road $0 $101,477 $101,477 Total (personal advice failures) $223,655,105 $37,709,117 $261,364,222 NULIS Nominees (Australia) Ltd $35,900,408 (8) 67,000,000 (9) $102,900,408 Total (personal and general advice failures) $259,555,513 $104,709,117 $364,264,630

Source: Data reported by the AFS licensees to ASIC as at 30 June 2018.

Table notes

(1) This includes amounts paid to customers as well as amounts paid to unclaimed monies and charities (for example, where the licensee was unable to contact the customer).

(2) Some estimates exclude interest. Estimates may change, as each entity further investigates the failures. Some entities do not yet have estimates of future remediation, but have provisioned for (or are in the process of provisioning for) FFNS remediation in their financial statements. The provisions may include amounts already paid.

(3) In addition, on 27 July 2018, AMP announced that it has provisioned in relation to potential remediation in relation to ASIC report 499. AMP has advised ASIC that its pre-tax estimate for FFNS remediation is $240m, or $360m including interest. This estimate covers all the advice licensees within the AMP group (both the salaried advisers and the aligned dealer groups) and covers remediation for the period up to 31 December 2017.

(4) ANZ has advised ASIC that it has provisioned for FFNS remediation, but has not yet provided details of that provision to ASIC.

(5) NAB has provisioned a further $65m across its financial advice licensees relating to FFNS remediation and project costs.

(6) Though Westpac has not provided ASIC with an estimate for future remediation, it informed ASIC that it has provisioned approximately $24m relating to FFNS remediation for the 2017-18 financial year for Westpac Banking Corporation, of which 3.24m had been paid as at 30 June 2018. This provision does not cover future periods, or other Westpac owned AFS licensees.

(7) StatePlus has not provided ASIC with an estimate of future FFNS remediation. However, it has provisioned a further $53m relating to FFNS remediation, which it expects will cover both further FFNS customer remediation and remediation project expenses.

(8) The table shows compensation paid 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). This remediation was completed in 2017. As announced by ASIC on 2 February 2017 ASIC imposed additional licence conditions on NULIS following this and another breach: ASIC MR 17-022. The failure was by MLC Nominees Pty Ltd and MLC Limited. 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.

(9) On 26 July 2018 NULIS announced a further remediation program relating to general advice fees. This amount excludes interest.

How to remediate FFNS failures

ASIC has published an Information Sheet 232 (INFO 232) that sets out ASIC’s expectations of AFS licensees remediating FFNS breaches.

Next steps

ASIC will continue to monitor the above FFNS licensees compensation programs.

In addition, ASIC will continue to supervise the further reviews for those entities subject to the FFNS project, to determine whether any additional instances of fees being charged without advice being provided are identified. ASIC expects to publish a media release on their further reviews in the coming months.

Background

In October 2016, ASIC released Report 499 Financial advice: fees for no service (REP 499). The report described systemic failures of the advice divisions of the largest banks and AMP, as well as some of their product issuers, to ensure that ongoing advice services were provided to customers who paid fees to receive these services, the failure of advisers to provide such services, and the failure of product issuers to switch off advice fees of 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.

ASIC has published updates to the above remediation in May 2017 (17-145MR) and in December 2017 (17-438MR).

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 AFS licensee's internal dispute resolution system or the Financial Ombudsman Service.

ASIC's MoneySmart website explains how customers can check they are getting the financial advice they paid for. It also has a financial advice toolkit to help customers navigate the financial advice process and understand what they should expect from an adviser, and useful information about how to make a complaint.