Audio: Jo Bird talks about financial advice fees for no service report

Audio transcript: ASIC podcast

Estimated time: 7.37 minutes

In this podcast, Senior Executive Leader, Joanna Bird, talk about how ASIC is addressing advisers' systemic failures to provide ongoing advice services to customers who paid fees for those services.


Interviewer: Hello and welcome to ASIC View, the official podcast of the Australian Securities and Investments Commission. On today's episode we'll be discussing ASIC's report into the extent of failure to deliver ongoing advice services to financial advice customers who are paying fees to receive those services. My name is Andrew Williams and with me this time around is Jo Bird, Senior Executive Leader, Financial Advisers at ASIC. Jo, thank you very much for your time.

Jo: Thanks Andrew, good to be with you.

Interviewer: Can you tell us more about the kind of fees we're talking about here? Why are customers paying these fees in the first place?

Jo: Basically the customers are paying fees to receive an ongoing advice service such as an annual financial advice review. However, they're not receiving the service. There are basically two reasons why they don't receive the service.

The first is they don't actually have a financial adviser allocated to them, because for example, their financial adviser has left the licensee or has retired. But they're still being charged the fee for the ongoing advice, which they're not receiving.

The second situation is where the customer does have a financial adviser allocated to them, but that adviser doesn't provide the advice they've agreed to provide, even though the fees are being taken out of, for example, the customers investment accounts.

Interviewer: Are there particular organisations that the advisers covered in this report are associated with?

Jo: This report is part of our Wealth Management Operations project, so we're focusing on the conduct of six of Australia's largest banking and financial services institutions. So we're looking at AMP, ANZ, Commonwealth Bank of Australia, Macquarie Group, National Australia Bank and Westpac.

Interviewer: And it's my understanding that's nearly half of the overall market? It's about 40% of the overall market.

Jo: Those institutions account for about 40% of the advice market.

Interviewer: So what led to ASIC looking into this issue in the first place and producing this report? And what did you find?  

Jo: Okay. We started this project as a result of information we obtained including through breach notification from some of the licensees. That information suggested to us that this conduct of charging fees and not providing any services was occurring. AMP, ANZ, CBA and NAB have all identified systemic issues in relation to the charging of ongoing advice fees and failure to provide those services for the fees.

Westpac has also identified a systemic issue, but in relation to one adviser only. Macquarie hasn't actually identified any systemic failures of the fee for no service variety. That isn't really surprising to us actually because Macquarie has quite a different business model to the other institutions.

So in the course of the project, well we've discovered that the problem exists and we've successfully negotiated a range of positive and improved compensation outcomes for the affected customers. We've said to the institutions, you have to make sure you fully compensate all these customers for these breaches.

And, we've made sure that the institutions have correctly identified the customers who have been affected by the breaches. We're making sure that the way they're calculating their compensation is fair. We're also insisting that they go in there and do some further reviews to make sure that they don't have these problems elsewhere, that they haven't identified.

Furthermore, we're actually asking them to make changes to their businesses to make sure that these failures don't occur in the future.

Interviewer: Is ASIC going to take any enforcement action in relation to the conduct outlined in this report?

Jo: ASIC has commenced several enforcement investigations in relation to this conduct. But regardless of those investigations, we think it's really important that the licensees compensate affected customers and make changes to their businesses to make sure that these problems don't occur again in the future and the report we've just published is about that part of our work.

Interviewer: Now you mentioned the importance of compensation here, can you talk a little bit about what the compensation process so far has entailed and what we can expect to happen in the future?

Jo: Certainly. So, as of 31 August 2016, the compensation arising from the failures outlined in our report was approximately $23.6 million. And that's been paid, or agreed to be paid, to 27,000 customers also. We expect the amount of compensation to substantially increase in the coming months. We have asked all of the institutions to give us the estimates of how much compensation they expect to pay for those breaches that they have already identified. And they have estimated that they will be paying $154 million plus interest extra to over 175,000 further clients.

So that will take the total compensation to more than $176 million.

Interviewer: Yes. And that's the estimate at this point?

Jo: Yes. I should add, obviously the earlier figure I gave you, the $23.6 million, is money that's clear and that money's been paid or about to be paid. The future figures of $154 million plus interest is an estimate.

Interviewer: And the amount of compensation that each individual customer gets will differ depending on the kind of fees that they've been paying in the first place? So it's not a uniform average?

Jo: That's right. It differs for each customer depending on how much they've paid and how long they were in an ongoing fee arrangement for.

Interviewer: Speaking of those customers, if anyone is currently paying for financial advice, or maybe they're thinking about paying for financial advice in the future, what advice do you have for people that are going into this industry and maybe looked at this report and had concerns?

Jo: Okay. My first tip would be to go to ASIC's MoneySmart website. That's a really useful resource for people who want to get financial advice. It gives them some guidance about how much financial advice might cost, and it really explains the advice process. My second piece of advice would be that customers should always check that they're receiving the services that they're paying for.

Fortunately, in the advice space, the Future of Financial Advice (FoFA) reforms have made it much easier for customers to check that they are getting the advice they're paying for. Every year a customer who is in an ongoing advice relationship should receive a fee disclosure statement that will set out exactly what they're paying and what service they're getting for what they're paying. And then every 2 years they will have to actively opt-in to the continuation of that ongoing fee arrangement.

The last point I'll make was that actually if you feel like you might have paid fees for services in the past that you didn't receive, you might be entitled to refunds and compensation. And you should, in the first point, lodge a complaint through the bank or the licensees internal dispute resolution system. And if you don't get satisfaction there, you should go to the Financial Ombudsman Service (FOS).

Interviewer: That's good advice Jo. Thank you very much for your time.

Jo: It's a pleasure. Thank you.

Interviewer: The report and the media release relating to the report can both be found on ASIC's website. Just go to There's also a link to the relevant MoneySmart page there in the media release. So check that out.

We'll be back with another episode very shortly. Thank you very much for listening. 

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Last updated: 14 Mar 2017