Why the fee for no service saga is back in the spotlight
Two Westpac subsidiaries and a major superannuation provider are in hot water after they were found to have charged members for financial advice they never received, with some seeing upwards of $20,000 wrongfully taken from their accounts over several years.
ASIC alleges that on 2643 occasions from September 2014 to August 2017 Asgard charged 404 customers around $130,006 for financial advice after requests were made for advisers to be removed from their product accounts and after the advisers ceased providing advice.
It also said that BT, as trustee of superannuation products, issued account statements that claimed no advice fees were being charged.
The fees were charged on eight different products, one being the IDPS product issued by Asgard and seven super products for which BT was trustee and Asgard served as custodian and administrator. These include the Asgard Infinity eWRAP Pension Account, the Asgard Infinity eWRAP Super Account, the Asgard Superannuation Account and the Asgard Employee Superannuation Account.
The bulk of those impacted were members of the Asgard Infinity eWRAP Super Account.
According to documents, the overcharging is a result of Asgard outsourcing services to an offshore third-party service provider, Genpact Australia, which did not have access to Asgard's Application For Service 2 (AFS2) system which couldn't process changes to ongoing fees for 'Infinity' branded products. Therefore, requests to reduce ongoing adviser fees to zero were not met, impacting 397 members. Failure to remove the ongoing fees for a further 11 members was put down to human error.
The documents also say a coding change made to Asgard's fee system was applied to products it wasn't supposed to be and, as a result, when a linked adviser was removed from one of the products in question and the associated fees were removed, an amount equal to the adviser fee was added to the admin fee.
The overcharging was only identified in October 2016 when a customer noticed their fees had not changed despite becoming a 'previously advised client' or PAC.
These wrongly charged fees were retained by Asgard as revenue, ASIC alleges. In doing so, Asgard contravened its obligations as an AFSL holder to act efficiently, honestly and fairly.
In 2018, the Royal Commission revealed that BT and Asgard charged about 767 members for financial product advice that wasn't provided between 2001 and August 2017. From December 2017 to March 2018, Westpac remediated members to the tune of $634,490.
The action announced today relates to conduct over the last six years. In response, Westpac said the charging of the fees was "inadvertent" and was self-reported to ASIC.
Westpac said it doesn't intend to defend the proceedings and apologises for the errors.
Elsewhere, the regulator also commenced civil penalty proceedings against State Super Financial Services Australia Limited, or StatePlus, for charging at least 36,592 members fees for advice that was never provided.
ASIC alleges the fund also issued defective disclosure documents or statements that included promises to provide advice annually in circumstances that StatePlus had no reason to believe it could provide. It also failed to establish and maintain appropriate internal procedures, measures and controls to ensure it could provide the promised advice.
According to court documents, among other things, prior to 1 July 2017 StatePlus did not effectively record and keep data of the anniversary date at which an advice client would be entitled to their annual review. It also maintained a financial incentive scheme that, before 1 July 2018, contained new advice revenue targets that had to be met before the adviser would receive an incentive, "thereby incentivising planners to prioritise prospective clients instead of annual review services".
StatePlus also had no limits in place to ensure advisers weren't allocated more clients than they could reasonably be expected to provide an annual review to.
The conduct occurred when StatePlus was the RSE licensee for StatePlus Fixed Term Pension Plan and the StatePlus Retirement Fund. As at 30 June 2017, the two funds had a combined $17 billion under management on behalf of 75,000 members.
Again, in doing so, StatePlus contravened its obligations of an AFSL, ASIC said. It has so far remediated over $100 million to members, according to the regulator. In 2018, StatePlus had already paid $37.2 million in remediation, and set aside a further $53 million for future remediation related to fees-for-no-service.
According to the documents, individual members have been remediated between $0.44 and $32,325.
StatePlus, which was acquired by First State Super in 2016, now faces a maximum penalty of between $1.7 million and $2.1 million per contravention for accepting payment without being able to supply as ordered.
"Today, ASIC has commenced a 'fees for no service' case against BT and Asgard as well as commencing a 'fees for no service' case against StatePlus Super," ASIC deputy chair Daniel Crennan said.
"Both cases, which relate to superannuation, were subject to cases studies in the Royal Commission, were investigated by ASIC's Office of Enforcement and have been brought by ASIC to the Federal Court for determination."