Banks to stick with ‘grandfathered’ advice charges

The Australian

29 June 2018

Anthony Klan

Most of the nation’s biggest banks will continue charging about 500,000 customers hundreds of millions of dollars a year in so-called “grandfathered” commissions, fees and charges despite those charges being made illegal for all new investments five years ago.

Long-term customers of CBA, ANZ, NAB and AMP financial products will continue to be charged the fees, despite Westpac’s BT last week saying it would stop the practice, which was allowed to continue after requests for a “transition” period when the 2013 laws were introduced.

The other big three banks and AMP — which earns as much as 70 per cent of its financial advice revenue from fees and charges carved out of the 2013 reforms — all confirmed yesterday that they would not follow Westpac’s lead.

The Productivity Commission’s recent draft report into the superannuation sector earmarked those fees, which occur mostly in the form of “trailing” commissions paid regularly to financial advisers, often years after any advice was actually given, to be a serious cause of super “balance erosion”.

The commission estimated there were more than 630,000 accounts nationwide that were affected by trailing commissions, which “can materially erode member balances”.

Westpac’s BT Financial Advice Group surprised the market last week and said financial advisers working for companies owned by Westpac would no longer charge trailing commissions and would wind back grandfather payments, benefiting “more than 140,000 BT Advice customer accounts”. People who were invested in BT products who had received advice from “external” financial advisers would continue to pay trailing commissions. BT said the moves would cost it about $40m a year before tax.

In light of tightening regulation and the growing awareness of the large fees charged by financial advisers for little or no service, Westpac is the only one of the major four banks that is expected to retain its “wealth management” business. Its announcement this week was seen to be a move by the bank to be noted as trying to improve its image, and to act before the royal commission into financial services makes its recommendations.

The CBA on Monday announced it would sell much of its wealth management business and float it on the stock exchange, and so was unlikely to take any steps to wind back lucrative trailing commission revenues so as to maximise the sale price.

When asked whether CBA would also ban grandfathered fees, a spokeswoman said demerger would involve a “large portion of its wealth management and mortgage broking businesses to create a new, separate financial services company”.

An NAB spokeswoman said the bank “regularly reviewed” its commissions. An AMP spokeswoman said “grandfathered commissions will continue to diminish through attrition”.

An ANZ spokesman said the bank was “operating to the requirements of current legislation”.

“Should the government or the royal commission put forward any proposals in this area, we will obviously examine them closely,” he said.