The Commonwealth Bank of Australia (CBA) yesterday broke its long period of silence following last month’s Senate Economics References Committee report into Commonwealth Financial Planning (CFPL) and the Australian Securities and Investment Commission (ASIC).
CBA chief executive Ian Narev delivered a polished but not entirely convincing presentation to members of the press gathered at the bank’s Sussex St, Sydney headquarters. After issuing a straight-faced apology to customers on behalf of the bank, he repeatedly declined to provide a number of specific details.
“To all the customers who received bad advice, I apologise unreservedly. We are truly sorry and we acknowledge the financial hardship that you suffered as a result of the poor advice. That is the most critical message underlying what we’re doing today,” he said.
Narev then announced the bank’s Open Advice Review, a program of remediation and independent oversight it aims to roll out to customers of both CFPL and its subsidiary, Financial Wisdom (FWL).
Asked to put even a ballpark figure on what financial reserves the bank has set aside to address any additional compensation claims, on a number of occasions he said only that the amount would not be “material” to CBA shareholders.
“From the perspective of our investors, we don’t expect this to be material.
“It is of course extremely material to the customers who’ve suffered financial loss, so we expect that we’re going to be able to provision this in a way that won’t be material to our shareholders, but won’t make specific disclosure about that number.”
He also refused to be drawn on any estimate of the potential number of customers the bank expects may yet come forward seeking compensation for advice received from financial planners licensed by either CFPL or FWL.
“It is very difficult to ascertain…we have made some assumptions. We’re not talking about numbers of customers and dollars, because that’s actually not what this is about. Other than giving our shareholders comfort, we don’t believe it’s material.
“If we’ve done wrong, we need to put it right, no matter what that number of customers is,” Narev added.
Under the terms of the new program, any customer concerned they may have received bad advice from CFPL or FWL between the start of September 2003 and 1 July 2012 can call a dedicated phone line to request an assessment.
Narev emphasised a key feature of the proposed Open Advice Review is its independent oversight. Customers dissatisfied with an initial review conducted by the new CBA team can approach an independent customer advocate funded by the bank.
An additional level in the process will allow customers who still disagree with the assessment to receive a further review by an independent panel “determining whether compensation is payable and, if so, how much”.
Independent candidates undecided
Asked whether the bank would accept assistance from financial industry groups, such as the Financial Planning Association (FPA), Narev said: “We haven’t made a decision yet about who is going to be involved, either from the customer advocate side or the independent panel.”
The FPA this week publicly expressed its disappointment at the financial damage done to CFPL and FWL customers, offering to play a role in its own proposal for an independently chaired committee to oversee a full and fair compensation process, as outlined in an FPA letter to members and an issued statement: FPA welcomes CBA compensation but calls for more.
“Obviously, before we sat down here today, we had an idea of some of the types of people and organisations who might be involved. We’re not going to mention that at the moment,” said Narev.
If the above avenues have been exhausted, customers are still free to seek further review by the Financial Ombudsman Service, without being bound by any earlier findings.
Narev argues banks still capable of providing unconflicted advice
Various industry stakeholders have long expressed the view that major financial institutions such as CBA are inherently incapable of providing unconflicted financial advice, due to their vertical integration in both manufacturing and distributing financial products.
Asked for his views on this, Narev said: “All our advisers are under a duty to act in the best interest of customers, and that’s a legal duty. And even if it wasn’t, that’s the way we want to run the business.
“Beyond that, I think, and our research shows, that when people walk in to speak to somebody from the CBA, they expect to talk about Commonwealth Bank products, and I don’t think we should shy away from that.
“There are all sorts of different avenues people have to pursue, but I don’t think they’re in much doubt when they come and see people under the yellow diamond badge, that they’re going to be talking to people about yellow diamond type products, so we have to make sure it’s in the right interest of customers.”
Narev also referred to the scale benefits the bank provides, along with “systems in approved product list governance…to support a very good and effective cost-effective financial planning business.”