Commonwealth Bank’s beleaguered financial planning arms are again under fire after the consumer regulator revealed that it has compensated only a fraction of its customers who paid for financial advice they never received.
The Australian Securities and Investments Commission revealed on Thursday that the four big banks and AMP will have to pay more than 200,000 customers compensation of at least $178 million after they were slugged fees for annual investment reviews that were not provided.
While the compensation bill is likely to blow out further, CBA accounts for the lion’s share of the breaches and will have to pay $105 million plus interest to more than 50,000 clients.
So far, only 184 customers have received $575,587 in compensation from the bank over “fees for no service” rorts that date back to July 2008.
The lethargic rate at which CBA is paying compensation for the rip-off fees drew fire from the country’s peak consumer advocate, CHOICE.
“It is really disappointing that Commonwealth Bank hasn’t compensated most of the customers who received no financial advice and were still charged fees,” said Erin Turner, CHOICE’s head of campaigns and policy.
“The fee-for-no-service culture in financial advice has been propping up the big banks for many years and we now know it’s been one of the biggest rorts in the industry.”
CBA, which first identified the “fees for no service” slugs in 2014, said in a statement that compensation payments would be completed by June 2017.
The bank’s head of wealth management, Annabel Spring, said the bank was “working hard” to make refunds.
“We apologise to our customers who did not receive their annual review,” Ms Spring said.
“We are working hard to complete our review of customers and have commenced contacting customers to refund fees, wherever our records do not show that an annual review was provided.”
ASIC deputy commissioner Peter Kel warned CBA and the other banks to “get their skates on” to compensate customers.
“Our objective is to get this money back into the pockets of customers as soon as practicable,” he said.
How ASIC lifted the lid on another bank scandal
The consumer watchdog has been investigating the incidence of “fees for no service” since 2013 when ANZ revealed its financial planning arm had billed customers for services it failed to deliver.
That disclosure put the spotlight on similar practices at other banks, with the ASIC investigation exposing a systemic problem of over-charging across the industry that goes back as far as 2008.
CBA and the other banks began disclosing “fee mistakes” in 2014 and eventually the magnitude of the fee rorting was exposed.
ANZ has paid $20 million in compensation to thousands of its financial planning clients, but has to shell out another $30 million, according to disclosures it has made to ASIC.
At this stage Westpac has paid $1.2 million in compensation, but its final bill could rise significantly as reviews of client accounts are completed.
If these reviews show that Westpac’s financial planning arms were also affected by the “systemic errors” at other banks, then the industry’s bill could exceed $300 million.
CHOICE believes that the investigations have some way to go before the full extent of the fee rorting is understood.
“This should only be the start of the investigations because we seem to be learning more about this as each year rolls by,” Ms Turner said.
Customers to receive compensation letters
Many financial planning customers of the banks are not aware that their advisers are required to complete annual reviews of their financial strategies and circumstances.
In the coming weeks, all customers who paid fees for no service will receive letters offering compensation.
However, the compensation being offered by the banks is not likely to include losses incurred by customers for missing out on the financial advice that they were contracted to receive.
In some cases people may have retired with lower superannuation balances because their investment portfolios were not de-risked before the global financial crisis hit in late 2008.
Such grievances could trigger a raft of complaints to the Financial Ombudsman Service from customers wanting to recoup investment losses caused by the banks’ failure to provide financial advice.
Aggrieved customers can find out more about the Financial Ombudsman Service by ringing 1800 367 287 or visiting the website.