$30 million: the cost of bad financial advice
How would you feel if you went to a doctor who wasn't any good? After you complain, you find out later that the doctor's references weren't adequately checked by the medical centre.
Well this has been happening with financial planners and instead of your health; it is your wealth at stake.
Poor reference and background checking of financial planners' credentials by the big four banks - Commonwealth, NAB, Westpac and ANZ as well as AMP, was uncovered by the regulator, the Australian Securities and Investments Commission (ASIC) when it reviewed how large institutions review their financial planners.
Not following references up effectively led to high risk advisers being employed by these five institutions and contributed to 1347 customers losing money. The five financial institutions paid out $30 million to them in compensation. ASIC found that the advice from 185 planners caused serious compliance concerns.
ASIC put out a damning report also criticising how financial institutions were slow to let ASIC know about financial planners' misconduct that led to a breach. Also there were poor audits to monitor financial planners' compliance about whether the advice was 'in the clients best interests' and met other obligations.
ASIC found that of the planner audits only 18% were effective while 57% were partially effective and 25% were ineffective. Of the quarter that were ineffective, the five financial institutions didn't identify any areas of non-compliance but ASIC's reviewers picked up areas of non-compliance.
ASIC found 79% of audits showed that planners' conduct needed to be corrected while the five institutions found that only 50% were identified by the licensees' auditors, a huge difference of 29%.
Which financial institution came top of the list?
Two of the banks had already paid out compensation separately and not part of this review. Commonwealth Bank paid out $80 million as part of its large-scale remediation program and NAB paid out $3.38 million as part of its response.
ANZ paid out $7.9 million in compensation to 300 customers for detrimental advice from 22 planners.
Westpac paid $7.5 million in compensation to 270 customers wronged by 16 planners.
AMP scored the highest number of customer complaints with 429 against 19 financial planners that resulted in AMP paying out $7.2 million.
Commonwealth had 233 customers, 16 advisers and compensation payments totalling $5.23 million while NAB had 115 customers, 24 planners and $2.28 million.