Westpac’s wealth management arm BT is to scrap conflicted payments to financial planners still allowed on deals done before the Future of Financial Advice reforms introduced in 2013.
The move, which comes hard on the heels of revelations of unethical account charges at the banking royal commission, will end fees on 140,000 accounts and will cut the bank’s profit by $28 million over the full year.
The accounts affected will cover BT superannuation, investment, insurance and platform products, BT Financial Group chief executive Brad Cooper said.
The payments covered are mostly volume incentives received by planners when sales are made and trailing commissions paid to advisers over the life of the product.
Known as “conflicted commissions”, they were banned under FOFA in 2013 because they put advisers interests in conflict with those of their clients.
But existing arrangements were “grandfathered” and allowed to continue indefinitely. Mr Cooper said their scrapping followed other recent moves by BT to scrap unearned fees allowed under FOFA, roll out opt-in provisions to make sure clients agree to fee payments and remunerate its 1000 advisers through a salary and bonus system.
“We have considered this position from both a customer and a stakeholder perspective and decided that it is the right time to draw a line under these past arrangements and eliminate them as far as we are contractually able,” Mr Cooper said.
BT’s actions are seen as significant because it is the only one of the big four banks that plans to hold onto its wealth management division completely. CBA, which no longer pays grandfathered commissions, plans a $4 billion float of its Colonial wealth business, ANZ is to sell most of its wealth advisory operations to IOOF and NAB plans to sell its MLC operations, probably for less than it paid for it.
AMP, which doesn’t have significant banking operations, will remain wedded to wealth management. It does not plan to stop receiving FOFA grandfathered commissions, but a spokesperson said they are diminishing as a revenue source as time goes by.
BT said it had been working on the changes before the royal commission. During the commission’s hearings into financial planning, major institutions were found to have engaged in misconduct leaving themselves open to findings of possible misleading and deceptive activity.
AMP chief executive Craig Meller and chair Catherine Brenner were forced to resign after the commission found the group had misled ASIC over charging clients for investment advice not given.
CBA charged dead people’s accounts for advice and ANZ, NAB and Westpac were found to have engaged in misconduct.
Because Westpac plans to hold onto BT, it is vital that its operations are seen as ethical and above board to create value for the bank.
Ian Yates, CEO of seniors lobby group COTA, said BT’s plans to end conflicted advice fees were “very good news”.
“We fought long and hard to get FOFA through and there were attempts at backsliding [by governments and the industry]. But we were left with some grandfathered and volume based commissions.
“This is the way the industry needs to go. Those staying with legacy arrangements are just holding on when they need to move on with the times,” Mr Yates said.
“The industry needs to convince people that paying for advice represents good value.”
The new charging regime will apply from October.