Why You Still Can’t Trust Your Financial Adviser

From Bloomberg.

Your new financial adviser has a well-decorated office, a firm handshake, and a bright smile. After an hourlong meeting, you leave with what you think is a state-of-the-art investment portfolio. You feel financially secure, taken care of.

It’s also possible you’ve made a huge mistake. The White House under President Barack Obama estimated that Americans lose $17 billion a year to conflicts of interest among financial advisers. Wall Street lobbying groups dispute that math—and they’re right to do so. The actual dollar amount is probably much higher.

The Fiduciary Rule, finalized under Obama and originally set to take effect earlier this year, seeks to cure this disconnect. All advisers were to be required to put clients first when handling retirement accounts, where the bulk of everyday Americans’ savings reside. But then Donald Trump won the election, and on his 15th day in office, the Republican president ordered the Department of Labor to reconsider the rule. His advisers echoed Wall Street arguments that tying the hands of advisers would limit investor choices, raise the cost of financial advice, and trigger a wave of litigation.

This Friday, the rule will take partial effect. Its future, though, remains deep in doubt. Many Republicans in Congress oppose it, and Labor Secretary Alexander Acosta has suggested that at the very least it be revised. Then last week, Trump’s newly appointed chairman of the Securities and Exchange Commission, Wall Street lawyer Jay Clayton, announced his agency would also seek comment on the topic, a process that could further threaten the rule’s survival.

While Washington wrestles with the fate of the Fiduciary Rule, the financial advice landscape remains supremely dangerous. Three professors recently analyzed a decade of disciplinary data on 1.2 million financial advisers. What they found is decidedly unpleasant:

  • At the average firm, 8 percent of advisers have a record of serious misconduct.
  • Nearly half of those 8 percent held on to their jobs after being caught. About half of the rest got jobs at other financial firms. In other words, a year after serious misconduct, about three-quarters of advisers found to have wronged clients are still working.
  • It gets worse: Some 38 percent of those misbehaving advisers later go on to hurt even more clients.
  • You might think bigger firms would be more diligent, but you’d be wrong. At some large firms, more than 15 percent of advisers have records of serious misconduct. The highest was Oppenheimer & Co., where 20 percent had such black marks. Oppenheimer responded to the study, first published a year ago, by saying it replaced managers and made changes to hiring, technology, and compliance procedures.
  • Predators typically seek out the weak, and financial advisers are no different: The study shows that those with misconduct records are concentrated in counties with fewer college graduates and more retirees.

Offering financial advice is enormously profitable, with U.S. investment firms achieving operating profit margins as high as 39 percent, according to the CFA Institute. And once advisers collect enough client assets, they can get huge bonuses for switching firms (and bringing their customers with them). Until recently, the going rate was a bonus of more than three times the annual fees and commissions the adviser brings in the door; an adviser with $200 million under management could expect a bonus of $6.6 million. (The threat of the Fiduciary Rule, however, caused bonus offers to plunge.)

Meanwhile, the total cost of bad advice to consumers—in higher fees and lower performance—is probably much higher than the $17 billion estimated by Obama’s Council of Economic Advisers. The CEA figured investors are losing an extra 1 percent annually on $1.7 trillion in individual retirement accounts controlled by conflicted advisers. But IRAs represent just an eighth of the $56 trillion in financial wealth Americans control, according to Boston Consulting Group.

$200m+ Refunds Due From Major Financial Advisory Firms – ASIC

ASIC says AMP, ANZ, CBA, NAB and Westpac have so far repaid more than $60 million of an expected $200 million-plus total in refunds and interest for failing to provide general or personal financial advice to customers while charging them ongoing advice fees.

These institutions’ total compensation estimates for these advice delivery failures now stand at more than $204 million, plus interest. As foreshadowed in ASIC’s Report 499 Financial advice: fees for no service (REP499), ASIC can now provide an update on compensation outcomes to date.

Background

In October 2016 the Australian Securities and Investments Commission (ASIC) released REP499. The report covered advice divisions of the big four banks and AMP and described systemic failures to ensure that ongoing advice services were provided to customers who paid fees to receive these services, and the failure of advisers to provide such services. The report also discussed the systemic failure of product issuers to stop charging ongoing advice fees to 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.

Since REP 499 a further $37 million has been paid or offered to more than 18,000 customers. In addition, the institutions’ estimates of total required compensation for general and personal advice failures have increased by approximately 15% to more than $204 million, plus interest.

The table provides, at an institution level, compensation payments and estimates that were reported to ASIC as at 21 April 2017. Since that date compensation figures have continued to increase.

Group Compensation paid or offered Estimated future compensation   (excludes interest) Total (estimate, excludes   interest)
AMP $3,816,327 $603,387 $4,419,714
ANZ $43,818,571 $8,613,001 $52,431,572
CBA $5,850,827 $99,786,760 $105,637,587
NAB $4,641,539 $385,844 $5,027,383
Westpac $2,670,479 Not yet available $2,670,479
Total (personal advice   failures) $60,797,743 $109,388,992 $170,186,735
NULIS   Nominees (Australia) Ltd (1) Nil $34,720,614 $34,720,614
Total (personal and general   advice failures) $60,797,743 $144,109,606 $204,907,349

Source: Data is based on estimates provided to ASIC by the institutions and will change as the reviews to determine customer impact continue.

(1) For details, see the section on NAB below.

Key compensation developments

AMP

  • AMP’s total compensation estimate decreased from $4.6 million to $4.4 million as AMP reviewed customer files and data to determine compensation required, and revised its previous estimates.

ANZ

  • The total compensation estimate has increased from $49.7 million to $52.4 million due to the expansion of existing compensation programs and the identification of further failures by authorised representatives of two ANZ-owned advice businesses:
    • Financial Services Partners Pty Ltd; and
    • RI Advice Group Pty Ltd.
  • The largest component of ANZ’s compensation program relates to fees customers were charged for the Prime Access service, where ANZ could not find evidence of a statement of advice or record of advice for each annual review period.
  • In addition, ANZ found that further compensation of approximately $7.5 million is required to be paid to ANZ Prime Access customers for ANZ’s failure to rebate commissions in line with its agreement with customers. This compensation has not been included in the figures in this media release because it does not relate to a failure to provide advice for which customers were charged, but is noted for completeness and transparency.

CBA

  • There has been no substantial change in CBA’s compensation estimate, which remains at approximately $105 million, plus interest, the majority of which relates to Commonwealth Financial Planning Ltd (CFPL). The compensation estimate for CFPL results from a customer-focused methodology whereby, as well as providing refunds where the adviser failed to contact the client to provide an annual review, CFPL will provide fee refunds to customers where:
    • the adviser offered the customer an annual review and the customer declined, or
    • the adviser tried to contact the customer to offer a review, but was unable to contact the customer.
  • Some of the other licensees or banks covered by the ASIC fees-for-no-service project have not, at this stage, adopted a similar customer-focused approach to the situation in which a service was offered but not delivered.  ASIC continues to discuss the approach to this situation with these banks and licensees.

NAB

  • Since the publication of REP 499, by 21 April 2017, NAB reported to ASIC the further erroneous deduction of adviser service fees for personal advice from more than 3,000 customers of the following licensees:
    • Apogee Financial Planning Ltd: $11,978, from 11 customers;
    • GWM Adviser Services Ltd: $179,446, from 290 customers;
    • MLC Investments Ltd: $9,755, from six customers;
    • National Australia Bank Ltd: $2,777, from seven customers; and
    • NULIS: $173,120, from 3,310 customers.
  • In addition, the table shows the expected compensation of approximately $34.7 million 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). As announced by ASIC on 2 February 2017 ASIC has imposed additional licence conditions on NULIS following these and another breach: ASIC MR 17-022. The failure was by MLC Nominees Pty Ltd (and MLC Limited for the first of the two breaches).  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. The estimate of customer accounts affected has increased from approximately 108,867 to 220,460 since REP 499, reflecting the second of two breaches.

Westpac

  • REP 499 noted that Westpac had identified a systemic fees-for-no-service issue in relation to one adviser only, with compensation of $1.2 million paid in relation to those failures.
  • Following further ASIC enquiries, Westpac subsequently clarified that it has paid further compensation of approximately $1.4 million to 161 customers of that adviser and 14 further advisers, in respect for fee-for-no-service failures in the period 1 July 2008 to 31 December 2015.

Next steps

ASIC will continue to monitor these compensation programs and will provide another public update by the end of 2017.  In addition ASIC will continue to supervise the institutions’ further reviews to determine whether any additional instances are identified of fees being charged without advice being provided.

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

ASIC’s MoneySmart website has a financial advice toolkit to help customers navigate the financial advice process and understand what they should expect from an adviser. It also has useful information about how to make a complaint.

Federal Court declares Melbourne licensee breached FOFA laws

For the first time we get a read on how the Future of Financial Advice (FOFA) reforms will be interpreted by the courts.

ASIC says the Federal Court has found that Melbourne-based financial advice firm NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) breached the best interests obligations of the Corporations Act introduced under the Future of Financial Advice (FOFA) reforms.

This is the first finding of liability against a licensee for a breach of the FOFA reforms.

This matter relates to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015. On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements.

NSG consented to the making of declarations against it and after a hearing on 30 March 2017 the Court was satisfied that declarations ought to be made.

The Court found that NSG’s representatives:

  • breached s 961B of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations; and
  • breached s 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.

Those breaches amounted to a contravention by NSG of s 961L of the Corporations Act, which provides that a financial services licensee must ensure its representatives are compliant with the above sections of the Act.

The Court made the declarations based on the following deficiencies in NSG’s processes and procedures:

  • NSG’s new client advice process was insufficient to ensure that all necessary information was obtained from, and given to, the client;
  • NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests;
  • NSG did not routinely monitor its representatives nor identify deficiencies in the knowledge or skills of individual representatives;
  • NSG did not conduct regular or substantive performance reviews of its representatives;
  • NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG;
  • there was an absence of  regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented; and
  • NSG had a “commission only” remuneration model, which meant that representatives would only be compensated by way of commission for sales of life insurance products and superannuation rollovers.

ASIC Deputy Chairman Peter Kell said, “This finding, the first of its kind, provides guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate”.

ASIC has sought orders that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty will be fixed by the Court.

Background

On 3 June 2016, ASIC commenced proceedings against NSG in the Federal Court (refer: 16-187MR).

Separately ASIC announced:

ASIC has banned Mr Adrian Chenh and Mr Bill El-Helou from providing financial services for a period of five years each following an ASIC investigation.

ASIC’s investigation found that Mr Chenh and Mr El-Helou provided advice to clients that was in breach of the best interests duty introduced under the Future of Financial Advice (FOFA) reforms.

ASIC found that Mr Chenh and Mr El-Helou had:

  • failed to act in the best interests of clients in that the advice provided did not leave them in a better position;
  • failed to provide advice that was appropriate to the clients; and
  • failed to provide financial services guides, product disclosure statements and statements of advice.

An additional finding was made that Mr El-Helou was not adequately trained, or not competent, to provide financial services.

ASIC deputy Chairman Peter Kell said, ‘Financial advisers must act in the best interests of their clients and provide advice that is appropriate. ASIC is committed to raising standards in the financial advice industry.’

Mr Chenh and Mr El-Helou both have a right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions. Mr Chenh has exercised his right of appeal and filed an application for review on 21 March 2017.

Background

ASIC has commenced proceedings against NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) for breaches of the “best interests obligations” contained in the Corporations Act, and is seeking declarations of breaches and financial penalties (refer: 16-187MR).  A hearing on liability occurred on 30 March 2017.

Both Mr Chenh and Mr El-Helou, previously representatives at NSG, gave financial product advice, particularly in relation to superannuation and insurance.

ASIC establishes Financial Advisers Consultative Committee

ASIC today announced the establishment of the Financial Advisers Consultative Committee, designed to improve industry engagement with its regulator, and revealed its initial membership.

‘ASIC has extensive engagement with participants in the financial advice sector as well as financial advice industry bodies and consumer organisations. We saw benefit in extending our interaction with this sector through the establishment of a committee made up of practising advisers,’ said ASIC Deputy Chairman Peter Kell.

The Financial Advisers Consultative Committee (FACC) will supplement ASIC’s existing engagement with the financial advice industry by:

· contributing to our understanding  of issues in the financial advice industry, including those directly impacting on practising advisers;

· improving ASIC’s  capacity to identify, assess and respond  to emerging  trends in the financial advice industry.

The members of the FACC are practising financial advisers with a range of skills drawn from the following areas:

  • investment;
  • insurance;
  • superannuation;
  • self-managed superannuation funds; and
  • digital financial  advice.

The FACC will provide ASIC with views on a broad range of issues relating to the financial advice industry.

FACC Members

The initial members of the FACC are: Craig Banning, Jennifer Brown, Chris Brycki, Steven Dobson, Mark Everingham, Tony Gillett, Adam Goldstien, Cathryn Gross, Suzanne Haddan and Kevin Smith.

Deputy Chairman Peter Kell said, ‘The establishment of this committee is part of ASIC’s ongoing commitment to enhancing its engagement with its stakeholders.’

Mortgage Brokers Are Essential To The Home Loan Industry

It has been interesting reading the media coverage of the recently released ASIC report. Some suggest brokers have been “slammed”, others suggest its  more a touch on the tiller in terms of commission models. Having read the ASIC report in full – more than 240 pages, I think there are three points worth making.

First, around half of mortgages are originated via the broker channel, it varies by lender of course, but consumers get more responsive assistance and access to industry knowledge via a broker, and our surveys indicate much higher satisfaction ratings than those going direct to a bank. Because brokers look across lenders, they should have access to a wider range of options, and (perhaps) better pricing. Different types of customers use brokers differently.  But there is a valid and important role for brokers.

Broker originated loans may be more “risky” but this is more to do with the types of consumers who choose to use them.

Second, the current commission models are complex and not transparent, especially as it relates to soft commissions, incentives and other elements. In addition, the ownership of brokers is unclear. As a result consumers cannot be sure they are getting unbiased advice, and it may be the ownership structures and commissions get in the way.  As ASIC says:

Remuneration and ownership structures can, however, inhibit the consumer and competition benefits that can be achieved by brokers.

ASIC also says:

Brokers almost universally receive commissions paid by the ‘supply side’ of the market (i.e. the lender or aggregator), rather than by the consumer. Our review identified significant variability and complexity in remuneration structures between industry participants. The common element across all remuneration structures for brokers, however, was a standard commission model made up of an upfront and a trail commission.

ASIC are not suggesting the removal of the commission model, but they are suggesting significant changes to it. There will be ongoing consultation on the nature of those changes. But I think the enhanced requirements for disclosure of ownership structures is as important. Transparency is good. Better transparency is better.

We did a piece on brokers on our video blog (in 2016) – in the Truth About Mortgage Brokers.

But third, there is something which continues to bug me. Financial Advisors have a requirement to provide “best interest” advice (see ASIC’s report today), whereas Brokers and Lenders dealing with often the largest transaction a household will undertake have a lower hurdle of “not unsuitable”. This bifurcation of the supervision regime makes no sense.

Both advisors and brokers should be clearly working in the best interest of the clients. So why not create a standard and unified regulatory framework, covering all product and financial advice?  Now, I understand ASIC has two departments, separately looking at financial advice and mortgage lending but this is not a good enough reason. Time to put all advice, whether for wealth or lending, under the same regime. Not least because investment property loans are actually about wealth building, and should be considered as part of a wealth management strategy.  One third of mortgages are for investors, and our research highlights investors are more likely to access brokers.

The requirement for transparency, quality of the advice, and consumer outcomes should be the same. Far fetched? No.

The Financial Markets Authority in New Zealand says:

Financial advisers are people who give advice about investing and other financial services and products as part of their job or business. They include financial planners, mortgage and insurance brokers and people working for insurance companies, banks and building societies that provide advice about money, financial products and investing.

They do not have this bifurcation.

All financial advisers must exercise the care, diligence and skill that a reasonable financial adviser would exercise in the same circumstances. In determining what a reasonable financial adviser would do, the following matters must be taken into account:

  • the nature and requirements of the financial adviser’s client or clients
  • the nature of the service and the circumstances in which it is provided
  • the type of financial adviser

See more in section 33 of the Financial Advisers Act 2008. See examples below of how these obligations apply to advice on insurance and credit products.

How large financial advice firms have dealt with poor advisers

ASIC has today released the findings of its review of how Australia’s largest financial advice firms have dealt with past poor advice and non-compliant advisers, including how these firms have dealt with affected customers.

The review—which forms part of ASIC’s broader Wealth Management Project—was focussed on the conduct of the financial advice arms of AMP, ANZ, CBA, NAB and Westpac. It arose out of serious concerns about past adviser misconduct, and had the broad objective of lifting standards in major financial advice providers.

The review looked at:

  • how the firms identified and dealt with non-compliant conduct by their advisers between 1 January 2009 and 30 June 2015
  • the development and implementation by the firms of large-scale review and remediation frameworks to remediate customers impacted by non-compliant advice, and
  • the processes used to monitor and supervise the firms’ advisers, focussing on background and reference-checking, the adviser audit process and use of data analytics.

ASIC Report 515 Financial advice: Review of how large institutions oversee their advisers (REP 515) covers the key findings of this review and also provides an update on ASIC’s actions against the advisers who have been identified as raising serious compliance concerns, as well as the institutions’ progress in developing review and remediation programs.

As of 31 December 2016, ASIC had banned 26 advisers identified in this review who demonstrated serious compliance concerns, and has ongoing investigations or surveillance activities in relation to many others.

A total of approximately $30 million has been paid to 1,347 customers who suffered loss or detriment as a result of non-compliant conduct by advisers during the period of this review. (This amount is in addition to the compensation being paid by the institutions as part of the ‘fee for no service’ compensation payments set out in Report 499 Financial advice: Fees for no service (REP 499)).

ASIC Deputy Chairman Peter Kell said, ‘ASIC’s report sets out the significant work that has been done by the major financial advice institutions to implement large-scale review and remediation programs to identify and remediate customers impacted by poor advice given in the past. ASIC is working closely with these institutions as they deal with customers who have been affected by the past non-compliant advice. The programs all have third-party oversight and assurance.’

‘ASIC acknowledges the work undertaken by the financial advice institutions to improve their practices, and broader compliance approach, since the period of conduct under review, supported by recent legislative and regulatory reforms.

‘However, there is further work to be done to assist in re-building consumer trust and confidence in the financial advice industry,’ he said.

ASIC identified a number of areas of concern where further improvements need to be made, including:

  • failure to notify ASIC about serious non-compliance concerns regarding adviser conduct
  • significant delays between the institution first becoming aware of the misconduct and reporting it to ASIC
  • inadequate background and reference-checking processes, and
  • inadequate audit processes to assess whether the advice complied with the ‘best interest’ duty and other obligations.

Mr Kell said, ‘Failure or delay in notifying ASIC of suspected serious non-compliant conduct significantly affects our ability to take appropriate enforcement or other regulatory action. More importantly, it may also result in an increased risk of customer detriment as so-called ‘bad apple’ advisers continue to work in the industry.’

‘Strengthening breach reporting requirements will be an important issue in the current review of ASIC’s enforcement powers announced by Government in October 2016,’ he said.

ASIC acknowledged the Australian Bankers’ Association’s recently announced Reference Checking and Information Sharing Protocol. ‘There will be considerable focus on the operation of this protocol, and we encourage the industry to take a rigorous approach to ensure it is effective so that we see rapid improvements in the checking and provision of adviser references,’ said Mr Kell.

ASIC also welcomes the development of data analytics and key risk indicator tools by all of the advice institutions to improve the early identification of potentially non-compliant advice.

ASIC has developed a number of checklists for all advice licensees and compliance consultants to consider when:

  • conducting background and reference checks before appointing a new adviser (refer Appendix 2 of REP 515)
  • auditing  advisers to assess their compliance with the best interests duty and related obligations when providing personal advice (refer Appendix 3 of REP 515), and
  • developing and implementing Key Risk Indicators to identify high-risk advisers (refer Appendix 4 of REP 515).

‘It is critical that customers are able to get financial advice they can trust. ASIC expects internal processes to support core values of putting the customer first and where there are failings, for advice firms to act quickly to provide a response in the interests of their customers. This is a message for both large and small advice firms,’ Mr Kell said.

 

House passes professional standards bill

From The Financial Standard.

Federal laws which will affect the future of the financial planning industry passed the House of Representatives last night.

The Corporations Amendment (Professional Standards of Financial Advisers) Bill, which was first introduced into Parliament in November 2016 by the Coalition, passed the House on the first sitting day of 2017.

Minister for Revenue and Financial Services Kelly O’Dwyer said the Bill comes in response to the actions of a minority of rogue financial advisers.

“Over time, repeated instances of inappropriate advice have led to a reduction in consumers’ trust in the financial advice industry,” O’Dwyer said during a reading of the Bill.

“Reduced trust acts as a barrier to consumers seeking financial advice, which is a poor outcome for both consumers and the industry.”

O’Dwyer recognised the majority of financial advisers have provided high-quality advice to their clients, adding that the measures debated will help to rebuild confidence in the industry.

Under the legislation, financial advisers will be required to hold a degree or a qualification equivalent to a degree, complete a professional year, pass an exam, and undertake continuous professional development.

A single uniform code of ethics will also set the ethical principles that advisers must comply with.

O’Dwyer hopes that the passing of the Bill means that more Australians will have the confidence to seek financial advice, noting that currently only one in five seek advice.

The new professional standards regime will commence on 1 January 2019, following successful passage through the Senate.

Labor’s last minute amendment

Prior to passing the House, Shadow Assistant Treasurer Andrew Leigh called on the government to apologise to victims of bad financial practice following their vote against Labor’s proposed financial advice measures.

“The house calls on current Liberal and National Party parliamentarians to apologise for the disregard their colleagues in the 43rd parliament showed for the many victims of bad practice in the financial advice sector when they voted against Labor’s Future of Financial Advice measures,” Leigh’s proposed amendment stated.

Leigh offered three additional amendments, drawing attention to the lack of trust consumers have in the financial services industry.

Speaking to Financial Standard this morning, head of policy and government relations for the FPA Benjamin Marshan said that while he feels positive about how the Bill passed the house, he is disappointed with Labor’s response, given that the industry is desperately seeking certainty.

“The amendments that the ALP proposed were trying to play games and show up the Government,” Marshan said.

“It’s disappointing that given that financial planners have been looking for certainty. Consumers are looking for increased trust and passing the Bill through unanimously shows that the ALP didn’t have any philosophical issues with the Bill.”

Marshan added that the FPA is looking forward to the Bill passing quickly through the Senate on Thursday.

“We’re encouraged by the commitment that the government is showing to the industry,” he said.

Labor’s amendment was defeated 75-68.

ASIC bans former Westpac financial planner for eight years

ASIC has banned a former  employee representative of Westpac Financial Consultants Ltd (which is a part of the Westpac Banking Corporation), from providing financial services for eight years.

ethics-pic

ASIC found that during the period between July 2010 to April 2014 he was was involved in the provision of inappropriate advice to clients and also involved in the failure to provide one client with a written statement of advice.

ASIC found that he implemented a “one size fits all” advice strategy that

  • did not tailor advice to clients’ personal and financial circumstances; and
  • led to clients being over insured with inappropriate level of premiums.

ASIC also found he had

  • made one misrepresentation concerning tax savings; and
  • not be competent to provide financial services.

ASIC Deputy Chair Peter Kell said, ‘Advice needs to be tailored to the client’s needs and circumstances, and an advice provider must not lose sight of the needs of their client.’

His behavior was reported to ASIC in May 2014.

A customer remediation process was undertaken and 29 former clients were paid a total of $1,127,543 made up of advice fees, refunds of premiums for inappropriate advice and market loss relating to investments.

Background

This outcome is a result of ASIC’s Wealth Management Project. The Wealth Management Project was established in October 2014 with the objective of lifting standards by major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, AMP and Macquarie).

ASIC’s work in the Wealth Management Project covers a number of areas including:

  1. Working with the largest financial advice firms to address the identification and remediation of non-compliant advice; and
  2. Seeking regulatory outcomes, when appropriate, against licensees and advisers.

ASIC listed more than 20 named advisors who have been banned.

NAB’s Latest Financial Advice Customer Response Update

NAB has today provided an update on its financial advice Customer Response Initiative – a commitment made to improve transparency for Wealth advice customers.

Bank-Concept

Since February 2015, NAB has made $6.5 million in payments to 251 customers after resolving their claims for compensation. This uplift in payments to customers follows a significant investment by NAB into its capacity to investigate and resolve customer complaints.

NAB’s public commitments made in 2015 and the current status for each commitment is provided below:

Our commitment: Where there is professional misconduct in wealth advice we will move to write to all customers, where misconduct has occurred in the last five years.
Current status: On 21 October 2015, we announced that we had started to write to customers as part of the Customer Response Initiative. We are writing to groups of customers where there is a concern that they may have received inappropriate advice since 2009.

Our commitment: We will respond to all new customer complaints within 45 days.
Current status: We have committed to responding to new complaints within 45 days, and we are tracking well against this commitment.

Our commitment: We are going to add independence into our complaints and whistleblower process.
Current status: In addition to appointing an independent officer to sit on our own whistleblower committee, we have introduced six different measures to increase independence into our complaints resolution. They are:

  • appointing KPMG to help design the Customer Response Initiative
  • appointing an independent Customer Advocate for wealth advice
  • appointing Deloitte to review and report on our progress
  • Deloitte’s reports to us will be provided to ASIC – the independent regulator
  • offering customers $5000 to source their own additional independent financial advice if they need help understanding the outcomes of the CRI
  • negotiating a streamlined review process by FOS if customers do not accept the outcome of the Customer Response Initiative.

Our commitment: We will advise ASIC of all advisers who leave, with the categorisations and reasons of their departure.
Current status: In addition to our reporting obligations for the ASIC financial adviser register, we have implemented a process to notify ASIC in writing of any adviser departures, where we have had compliance concerns about that adviser.

Our commitment: We committed to look to remove confidentiality orders from settlements and to write to customers to advise them these orders had been lifted.
Current status: While our previous confidentiality obligations did allow customers to talk to the media, ASIC or advocacy groups about the facts leading to their complaint with NAB, we acknowledge they were written in such a way where customers may not have been aware of this. So, as part of our Customer Response Initiative, to remove any ambiguity, we have started to write to appropriate customers to advise them that past confidentiality obligations have been lifted. Furthermore, these clauses are no longer included in NAB Wealth Advice Deeds.

In addition to our 2015 commitments, NAB is committed and progressing to the package of industry initiatives announced by the Australian Bankers’ Association (ABA), aimed at enhancing our customers’ experience with us, and reinforcing the banking sector’s standards of service, integrity, trust and ethics.

When NAB last provided an update on its Customer Response Initiative in October 2015, we explained that since February 2015 to October 2015, NAB had made $1.7 million in payments to 87 customers after resolving their claims for compensation