Customers of financial planners concerned that they may be paying fees for advice but not getting the service they were promised, can check their situation at an ASIC website.
The MoneySmart site has a page that helps consumers check that they are getting the right level of service.
The site says: “Your ongoing service agreement may include newsletters or other financial education but the most important thing it should include is an annual advice review.
“The review should include discussion with your adviser about whether any adjustment needs to be made to your financial plan in response to changes to income, expenses, assets or liabilities, changes to personal insurance cover.
“The review should also focus on whether cover is still appropriate; how you are tracking against stated goals; changes to your goals or personal circumstances; how changes to legislation, the economy or financial products could affect your financial plan; whether any adjust.”
If people are paying ongoing advice fees for a period of more than 12 months, they must receive an annual fee disclosure statement. This requirement has been in place since July 2013 but may not apply to advice agreements made before this date.
The statement must include information about the amount paid in fees in the previous 12 months, the services received and the services the customer was entitled to receive.
Customers must also be provided with a renewal notice for the ongoing arrangement every two years.
The scandal of customers paying fees for financial advice but receiving no service widened last week, when Bendigo Financial Planning, Police Financial Services (trading as BankVic) State Super Financial Services Australia (trading at StatePlus) and Yellow Brick Road joined the big banks and AMP on the list of financial planning groups refunding customers after they were found to be charging ongoing advice fees but failing to provide advice.
The big banks and AMP have paid out or offered customers a total of $222.3 million under ASIC’s fee for no service refund programs. When all the estimates and provisions are taken into account, the total payout will be around $850 million.
AMP has paid out a little over $5 million but at the end of July it advised ASIC that it has provisioned $360 million, including interest, for potential remediation.
NAB has provisioned a further $65 million, ANZ has made additional provisions but has not yet disclosed the amount.
StatePlus has paid or offered $37.2 million under its program and has provisioned a further $53 million.
Bendigo Financial Planning has estimated that it will pay $2.5 million in compensation, and Yellow Brick Road has estimated that it will pay $101,470.
ASIC says fee for no service breaches usually occur when customers do not have an adviser allocated to them, or the adviser allocated to the customer failed to deliver on their obligations to provide ongoing service.
In some cases the adviser left the financial planning business and their files were not passed on to another adviser. In other cases the client requested that the advice be discontinued but fees were still charged.
ASIC says: “During the period of time covered by this project, the financial advice industry still had a culture of reliance on automatic periodic payments, such as sales commissions and advisers service fees.
“Some licensees and advisers failed to keep adequate records or to capture sufficient data electronically to enable monitoring and analysis.”
The introduction of fee disclosure statements and renewal notices as part of the 2013 FOFA reforms was a key factor that enabled customers to gain a better understanding of the advice services being charged for and provided and this has contributed to the identification of a number of the systemic failures in relation to ongoing fees.
“We expect that fee disclosure statements will also help to reduce the likelihood of related systemic failures in the future,” ASIC says.
Licensees have made a number of changes to their systems. AMP has a monthly reporting system to monitor whether advice fees have been switched off following clients’ instructions.
ANZ has instituted a system where all advisers are required to create records of providing annual reviews. It sends alerts to advisers to prompt them to undertake ongoing service obligations.
CBA has also introduced monitoring and alert systems.