The weight of numbers already generated in Commonwealth Bank’s Open Advice Review are staggering – and not only in terms of the scale of compensation paid out.
Some of the key numbers: more than 930,000 customer advice files; 350,000 affected households; and 23,000 customers who expressed an interest in the program.
The program has paid more than $950,000 in compensation to former clients of Commonwealth Financial Planning and CBA’s affiliated Australian Financial Services licensee Financial Wisdom, according to the most recent report issued by Promontory Financial Group.
Tom Reddacliff, principal, Reddacliff Consulting, believes the ongoing CBA program demonstrates an additional area of risk for financial planning practices, particularly for those outside the well-capitalised institutional AFS licensees.
“I think people underestimate the sheer number of documents generated per practice, even just one financial planning practice that’s been around for 15-20 years.
“Conventional wisdom has been suggestoing that creating a paperless office was a nice thing to do. I think its now been shown as something absolutely essential. In terms of risk management, you can’t do analytics with paper files, and that’s’ becoming a key factor,” Reddacliff says.
Promontory Financial Group’s latest report into CBA’s Open Advice Review indicates a total of 615 full time equivalent staff have been engaged in the painstaking process of locating, digitising and processing client files.
“[To address] this ‘needle in a haystack’ problem, CBA had to employ 600-plus people. When you consider most compliance teams [for institutions] are about a dozen people, this gives you an idea of the quantum and complexity of the problem.
“It’s this whole system – does it need a complete rethink?” Reddacliff says,
While high-powered software is now employed across much of the financial planning industry, enabling secure storage and retrieval of client information, he suggests it is the industry’s massive legacy books that pose the biggest problem.
Finding FinWiz files
In the case of CBA, it has faced considerable difficulties tracing a number of files from its aligned AFS licensee Financial Wisdom (FWL). As at August 19, it was still trying to locate hard-copy files for half of the FWL cases in the review program.
Sonia Cruz, senior consultant, The Fold – a law firm specialising in legal compliance for financial services firms – says her former employer AMP faced similar challenges after its 2007 enforceable undertaking, when it had to review client files created between 2003 and 2007.
“AMP has an enormous number of ARs, and during that time, a lot of the advisers maintained paper files and kept their own systems. In a lot of cases, they sent in the original paper file, so that took quite a bit of time [to collate],” Cruz says.
Initially engaged on the project for three months, her involvement blew out to 12 months.
“I spent the whole time going through files, and depending on the length of the files…if it was a client that the adviser had for many years, in some cases you’d need to look back at historical data.
“In some cases we had to directly interview the adviser as well, which makes it very difficult,” she says.
Cruz suggests AMP’s long background as a life insurance broker means some of the advisers had been in the industry for well over 20 or 30 years.
“So they weren’t necessarily as tech savvy as some of these guys now, so [a culture of] maintaining online information wasn’t very strong.”
In terms of the ongoing process at CBA, she says: “I don’t envy them, it’s a tough job.”
Perhaps most worrying of all, Cruz adds: “It’s probably going to end up costing them more to go through the exercise than what they pay out to investors, there’s a lot of people involved.”
