- 'Inexcusable' greed and dishonesty in financial advice
- By Clancy Yeates
- Contributed by: Sime ( 9 articles in 2018 )
Banks and financial advice businesses acted with "inexcusable" greed and dishonesty when they collected up to $1 billion from consumers for financial advice that was never given, Commissioner Kenneth Hayne says.
Some of the interim report's strongest language was reserved for the financial advice industry. It suggests getting rid of kick-backs and leaves the door open to forcing major financial institutions to sell their advice businesses altogether.
Banks have put 'profits before people' (05:39)
Treasurer Josh Frydenberg comments on the Banking Royal Commission interim report, which finds greed and short terms profits have been pursued over basic standards of honesty.
Commissioner Hayne did not hold back in his assessment of how institutions including the big four banks and AMP acted in relation to the "fees-for-no-service" affair, which was explored through several case studies at the hearings.
"Charging for doing what you do not do is dishonest. No-one needs legal advice to tell them that. The root cause for what happened was greed; the greed of both licensees and advisers," the report says.
Commissioner Hayne said the licencees treated the "provision of ongoing services as a matter of no concern to them." Advisers often acted as if the fees were trail commissions that could be collected without them needing to providing anything in return, he said.
"Whether the conduct is said to have been moved by ‘greed’, ‘avarice’, or ‘the pursuit of profit’, it is conduct that ignored the most basic standards of honesty," he wrote.
In a blunt attack on a profit-driven culture within parts of the banking sector, he said licensees "did nothing to stop it and they took the proceeds".
"The conduct of licensees and advisers was inexcusable and no-one has since tried to excuse it," he wrote.
Commissioner Hayne said "no one" had been subjected to any formal public process of investigation or punishment for this conduct.
He said that only "at the last minute" banks and other licensees formally acknowledge Australian Securities and Investments Commission had "concerns" about their collection of fees without providing any services.
ASIC launched a lawsuit against National Australia Bank over its charging fees for no service this month.
Commissioner Hayne has also questioned whether banks and other "manufacturers" of financial products should be banned from providing advice - a model known as "vertical integration."
This is the business model still used by Westpac and wealth managers AMP and IOOF.
"Should financial product manufacturers be permitted to provide financial advice?" the report says.
It also suggested the industry had far more work to do in stamping out "grandfathered" commissions, which were agreed to before the Gillard government's Future of Financial Advice laws.
The report noted that Westpac, Macquarie Group and ANZ Bank had stopped paying grandfathered commissions, and questioned how the industry could justify such payments.
Of the companies that were grilled over the fees-for-no-service advice scandal, AMP suffered the most dramatic fallout, with its chairman Catherine Brenner, former chief executive Craig Meller and several board members all leaving after explosive testimony in April.
Commissioner Hayne said AMP may have deliberately lied to the corporate watchdog in its reporting of the scandal the Australian Securities and Investments Commission. It may also have engaged in "misconduct" when it told ASIC that a report it commissioned was “external and independent.”