When a client consulted a financial adviser, the agreement made between them often said that the adviser would provide the client with certain services in exchange for an ongoing fee. The services to be provided under those arrangements were often so loosely defined that they had little or no substantive content beyond a promise to speak to the client (sometimes to offer to speak to the client) once each year.[1]
Some superannuation funds charged members fees for providing the member with ‘access’ to advice (described in one case as ‘ongoing general support services’[2]) from a nominated adviser. The member may have played no part in negotiating for provision of the service.[3]
It is now clear that over the last decade many who sought and obtained advice from a financial adviser, and many members of superannuation funds, were charged ongoing fees for services that were not provided. The fees were charged ‘invisibly’, in that they were deducted from consumers’ investment accounts, often enough their superannuation accounts.
The total amounts taken were very large. By August 2018, AFSL holders, including entities wholly owned by AMP and by the major banks, had paid clients about $260 million in compensation for the money that had been taken, together with interest on the amount of earnings lost.[4] At that time, the total amount paid and to be paid as compensation was estimated to be about $850 million – but the then Deputy Chair of ASIC said that he ‘wouldn’t at all be surprised if it ends up being in excess of a billion dollars’.[5] Evidence given during the seventh round of hearings supported that prediction. By the time of those hearings:
- the amount that AMP expected to pay was $359.7 million,[6] of a total amount of approximately $1 billion received by AMP in ongoing service fees in the 10 year period between 2008 to 2017;[7]
- CBA had paid a total of approximately $116 million in remediation for its ‘fees for no service’ conduct;[8] and
- Westpac estimated that, for its salaried advisers, across both 2017 and 2018, $117 million would be paid.[9] Westpac had not then made a provision in its accounts for remediation of amounts received by its authorised representatives.[10]
The fees were deducted automatically from clients’ accounts. Many licensees did not keep records that would allow them to determine whether the promised services were delivered. Some licensees kept records that showed that the adviser formerly ‘linked’ with the client was no longer linked with that client. The client may have terminated the relationship with the adviser; the adviser may have left the advice licensee; the client may no longer have been an eligible member of the relevant superannuation fund to seek advice from the nominated adviser; the client may have died. There could be, and there were, many reasons why the records of the licensee showed that the client could not (and therefore would not) receive the promised services.
But in all these kinds of case, advice licensees charged clients’ investment accounts with ongoing fees. The fees were charged in many cases without the licensee asking, or knowing, whether services had been provided, and even in many cases where the licensee’s records showed that the promised services could not possibly be delivered. And, in cases where there was no ‘linked adviser’, the licensee kept the fees for itself.
Several questions arise from clients having been charged ongoing fees for services that were not provided:
- How and why did these events occur?
- What has been the response to these events?
- Has that response been adequate?
- What changes are necessary to ensure these events do not occur again?
I will consider each of those questions in turn.
[1]FSRC, Interim Report, vol 1, 128.
[2]The MasterKey Business Super plan of which MLC Nominees Pty Limited was trustee and NULIS Nominees (Australia) Ltd became trustee. See Exhibit 5.43, Witness statement of Nicole Smith, 1 August 2018, 5 [13].
[3]For example, the ‘employer service fee’ charged to members of the MasterKey Business Super (MKBS) plan was deducted from member accounts of MKBS where the employer and the adviser had agreed that the fee would be charged. See Exhibit 5.43, Witness statement of Nicole Smith, 1 August 2018, 5 [13].
[4]Transcript, Peter Kell, 17 August 2018, 5254–5.
[5]Transcript, Peter Kell, 17 August 2018, 5254–5.
[6]Transcript, Michael Wilkins, 27 November 2018, 7192; Exhibit 7.112, Witness statement of Michael Wilkins, 21 November 2018, 22.
[7]Transcript, Michael Wilkins, 27 November 2018, 7199.
[8]Transcript, Matthew Comyn, 20 November 2018, 6677.
[9]Transcript, Brian Hartzer, 21 November 2018, 6836.
[10]Transcript, Brian Hartzer, 21 November 2018, 6838.