ASIC has accepted an enforceable undertaking (EU) from Commonwealth Financial Planning Limited (CFPL) and BW Financial Advice Limited (BWFA), both wholly owned subsidiaries of the Commonwealth Bank of Australia (CBA). ASIC found that CFPL and BWFA failed to provide, or failed to locate evidence regarding the provision of, annual reviews to approximately 31,500 'Ongoing Service' customers in the period from July 2007 to June 2015 (for CFPL) and from November 2010 to June 2015 (for BWFA).
The EU requires, among other things:
- CFPL and BWFA to pay a community benefit payment of $3 million in total;
- CFPL to provide an attestation from senior management setting out the material changes that have been made to CFPL's compliance systems and processes in response to the misconduct; and
- CFPL to provide further attestations from senior management, supported by an expert report, that:
- CFPL's compliance systems and processes are now reasonably adequate to track CFPL's contractual obligations to its Ongoing Service clients; and
- CFPL has taken reasonable steps to identify and remediate its Ongoing Service customers to whom CFPL did not provide annual reviews in the period from July 2015 to January 2018.
As BWFA ceased trading in October 2016, CFPL is the focus of the compliance improvements required under the EU.
ASIC Deputy Chair Peter Kell said, 'Our report into Fees For No Service in October 2016 identified the major financial institutions' systemic failures in this area, and called for fair compensation to be paid to customers who did not receive the advice reviews that they were promised and paid for.
'This enforceable undertaking follows on from the earlier enforceable undertaking accepted by ASIC in relation to ANZ's fees for no service conduct. These failures show that all too often the financial institutions prioritised revenue and fee generation over the delivery of advice and services paid for by their customers.'
In addition to the EU, CFPL and BWFA have also agreed to compensate approximately 31,500 affected customers in the period from July 2007 to June 2015 (for CFPL) and from November 2010 to June 2015 (for BWFA). The compensation program is nearing completion and as at 28 February 2018, CFPL and BWFA have paid or offered to pay approximately $88 million (plus interest) to these customers (with the total compensation estimated at $88.6 million (plus interest)).
The EU follows an ASIC investigation into CFPL and BWFA in relation to their fees for no service conduct concerning various Ongoing Service packages which were offered to CFPL and BWFA financial planning customers for an annual fee. A key component of those packages from about 2004 (for CFPL) and from 2010 (for BWFA) was the provision of an annual review of the customer's financial plan.
As a result of the investigation, ASIC was concerned that:
- CFPL and BWFA either did not provide, or have not identified evidence regarding the provision of, annual reviews to approximately 31,500 Ongoing Service customers who had paid for those reviews;
- CFPL and BWFA did not have adequate systems and processes in place for tracking their Ongoing Service customers and ensuring that annual reviews were provided to them;
- senior management were aware from at least mid-2012 that a relatively small number of CFPL Ongoing Service customers who were not assigned to an active adviser may not have received an annual review, and that there was a potential risk of a broader 'fees for no service' issue in relation to other Ongoing Service customers, but CFPL did not notify ASIC of the issue until July 2014; and
- CFPL and BWFA failed to comply with section 912A(1)(a) of the Corporations Act which provides that a financial services licensee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly, and a condition of their respective Australian financial services licence.
Both CFPL and BWFA have acknowledged in the EU that ASIC's concerns were reasonably held.
View the enforceable undertaking here.
The EU has been accepted by ASIC as part of ASIC's Wealth Management Project to address systemic failures by financial institutions and advisers, over a number of years, to provide ongoing advice services to customers who paid fees to receive those services (commonly referred to by ASIC as Fees for No Service conduct). A report on ASIC's work in this area was released in October 2016 (Report 499), and updated in May 2017 (17-145MR) and December 2017 (17-438MR).
ASIC's media release in relation to the ANZ fees for no service enforceable undertaking referred to above is available here (18-092MR).