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BFCSA: Consumers ask how many strikes for CBA until you are OUT!

Posted by on in ROYAL COMMISSION URGENT
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Claims surrounding CBA’s advice review program beg the question: how many strikes before you’re out?
 
29 October 2015
 

How many chances should an organisation have to prove it’s sincere in its actions and in its approach to fixing a massive, devastating problem of its own making?

If testimony at the most recent public hearing of the Senate Economics References Committee’s scrutiny of financial advice inquiry is to believed – and at this stage there is no reason why it should not be – there are some problems in how Commonwealth Bank of Australia’s   Open Advice Review program has been going about compensating clients to whom it has previously provided poor or fraudulent advice.

The Senate inquiry heard that CBA has sought to minimise compensation to customers who have lost money as a result of the advice they received. And questions need to be asked about even the compensation it has paid to date – is it in fact fair and adequate to make good the losses its customers have suffered?

CBA denies the suggestions put to the Senate hearing earlier this week. A statement published on its website says: “We reject allegations presented to the Senate Inquiry today and stand by the independence and integrity of the Open Advice Review program.

“We welcome scrutiny of the program and have today invited all committee members to view the workings of the program and meet the team and the assessors first hand,” it said.

Culture critical to survival

Last week Professional Planner spent time talking to the architect of the Future of Financial Advice (FoFA) reforms, former Minister for Superannuation and Financial Services Bernie Ripoll, who spoke in some detail about how critical cultural change is to the very survival of financial planning – its survival, let alone any hopes it has of becoming a respected profession.

Ripoll said that throughout the FoFA consultation process there was significant and sustained opposition to any changes at all that might wrest power from the hands of the established, largely institutional players, and deliver some sort of equality to consumers.

 

CBA’s advice failings seem to be rooted in a poor culture. Its advice problems only came to light through the courageous and selfless actions of “The Ferrets” – whistleblowers inside the CBA’s own ranks. And the latest revelations at the Senate hearing about its compensation program have also come via a whistleblower. If the compensation program were pro-active, transparent and fair, then whistleblowers would have nothing to talk about.

CBA recruited some highly respected and experienced people to the review program’s Independent Review Panel, and borrowed their reputations to lend credibility to its compensation process. None of them will be impressed by the latest revelations. Not that the panel has yet been called on to do much: the most recent report into the Open Advice Review program, published by Promontory financial Group, says that as the end of August, “no cases had been escalated to the Program’s Independent Review Panel”.

If it’s not working, what now?  The latest Senate hearings raise questions about whether a significant compensation program is actually working and, if it is in fact not working as planned, what action could be taken next that is clear, powerful, and appropriate in circumstances such as these.

One such measure could be to vary a Australian financial services licence so that the licensee can only continue to provide advice to people who are already customers of its advice business.

Existing customers could continue to receive advice and reviews where necessary, and individuals due compensation  could also get any advice they need. But the bank would not be able to onboard new clients until relevant parties – affected customers, the regulator and government – were satisfied that the review program is serving its intended purpose.

Putting a halt to new business would stymie the flow of cash onto a financial services provider’s platforms and into its insurance and investment products – and that’s stiumulus that it would undoubtedly respond to pretty quickly.

A message to all AFSLs – large or small

Not all CBA-aligned financial planners are at fault or have given poor advice to customers – far from it, of course; although that is increasingly somewhat beside the point.

The unfortunate and brutal fact is that all planners who operate under a CBA AFSL now find themselves aligned not only with a big bank but also with a bank responsible for a significant failure of financial planning and advice, and now with a question mark over the integrity of its remediation process.

Commonwealth Financial Planning (CFPL) has given an enforceable undertaking to ASIC already; and both CFPL and Financial Wisdom (FWL) had their licence conditions varied by the regulator last year, obliging them to (according to the Australian Securities and Investments Commission) “contact more than 4000 of their financial planning customers to inform them the advice they previously received was subject to an internal review as CFPL and FWL had identified that their adviser had provided poor advice to some customers in the past”.

And now the Senate has been told that there are shortcomings in the program designed to rectify the earlier problems.

If this were any other organisation, one suspects that the regulator might already have considered a course of action, such as varying the licensee’s AFSL so it can’t take on new business. If it were a really small licensee, it’s a fair bet its licence might have already been cancelled or suspended, or its ability to continue to operate put on hold in some other way.

There is an opportunity here for the regulator to send the message to every player in the financial planning space, whether they are big  or small or anywhere in between, that the culture of an organisation really matters. Financial planners occupy a position of trust; it’s other people’s money that they are dealing with; treat it like that, or pay the price.

 
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