Banks vow to prevent another 'fees for no service' scandal
Banks have vowed to stamp out the controversial – and potentially illegal – practice of charging of fees for financial services that are never provided, including to dead people, and will call for a ban on kick-backs paid to financial planners.
After last month’s scathing interim report from the Hayne royal commission, the Australian Bankers' Association will on Wednesday unveil its response to a high profile scandal that has seen about $1 billion wrongly taken out of consumers' investments.
ABA chief executive Anna Bligh said the industry’s changes would make it clear that charging fees for no service was “unacceptable.”Credit:AAP
The peak body also urged the government to step in and ban the payment of commissions from wealth managers to financial advisers, saying these payments led to "unacceptable" behaviour.
Since 2016, banks and other wealth managers have been embroiled in the "fee for no service" scandal, which was triggered by an investigation from the Australian Securities and Investments Commission (ASIC).
The Hayne royal commission into financial misconduct has highlighted the scandal repeatedly, including cases where the Commonwealth Bank charged fees to clients who had died.
Under the latest changes, banks will be required under the industry's code of practice to check on the fees being charged when a customer dies, and to stop charging fees for services that can no longer be provided, such as advice.
“The power of putting this into the code of banking practice is that long after the royal commission has ceased, it will be abundantly clear that this practice has no place in the industry,” Anna Bligh, the association's chief executive, said.
To deal with the wider issue of "fees for no service", the ABA said its members would change how they managed accounts, and contact customers to confirm they were only paying for services they needed. Banks are also compensating clients for money that was wrongly taken as fees.
The rolling "fees for no service" scandal has affected hundreds of thousands of customers, with each of the major banks, AMP and some smaller banks paying out millions of dollars in compensation.
ASIC has said the industry's compensation for the scandal could exceed $1 billion and it has also taken legal action against National Australia Bank over the issue.
As well, banks will on Wednesday urge the federal government to remove a 2013 carve-out that meant financial planners could continue to receive commissions that were agreed to by customers before the Gillard government's Future of Financial Advice (FOFA) laws came into effect.
Ms Bligh said commissions had been "grandfathered" on the assumption that these conflicted payments would "wither away."
“Five years on it is clear that this has not happened. And the royal commission makes it abundantly clear that these conflicted remuneration arrangements, but for the grandfathering clause, the activity would be illegal,” Ms Bligh said.
“The industry is firmly of the view that you cannot earn back trust relying on grandfathering provisions to excuse or to underpin conduct that everybody agrees is unacceptable.”
The major banks have all agreed to stop paying commissions to their own staff financial planners, but this has not stopped the payment of kick-backs to advisers working for other employers.
Research house Rainmaker has estimated financial advisers received about $300 million in “grandfathered” commissions in 2017, which is equal to more than a fifth of the $1.4 billion in fees flowing to the sector.
The announcement comes before the chief executives of Commonwealth Bank, Westpac and ANZ Bank will this week appear before the federal government's banking inquiry, at which they will be asked about the royal commisison.
Source: Read Full Article