The Commonwealth Bank has admitted to being the worst financial services entity in Australia for charging customers fees for financial advice they never received.
Senior executives from CBA faced the banking royal commission on Wednesday, where they were forced to explain the layers of fees CBA’s financial advice businesses charge customers.
It followed two days in the witness box for an AMP executive, Anthony Regan, who admitted that AMP had lied repeatedly to the corporate regulator about why it charged customers fees for no service.
AMP’s revelations prompted the treasurer, Scott Morrison, to warn that wrongdoers could face jail, saying the news was “deeply disturbing”.
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“I am very reassured by the fact that these matters were already being pursued by the Australian Securities and Investments Commission and will continue to be pursued,” Morrison said on Wednesday morning. “This type of behaviour can attract penalties which include jail time. That’s how serious these things are.”
In a statement on Wednesday, Asic said one of its current investigations was focusing on “fees for no service” and false and misleading statements by banks, leading to 18 examinations of AMP staff.
“Making false or misleading statements to Asic can result in civil and criminal sanctions,” Asic said.
On Wednesday, counsel assisting the royal commission, Mark Costello, asked Linda Elkins, from CBA’s wealth management arm Colonial First State, to confirm CBA’s poor record of charging fees for no service.
“It would be the gold medallist if [the corporate regulator] was handing out medals for fees for no service, wouldn’t it?” Costello asked.
Elkins replied: “Yes.”
The commission was told that from July 2007 to June 2015 clients of CBA’s Commonwealth Financial Planning, BW Financial Planning and Count Financial businesses were routinely charged ongoing fees for financial advice where no advice services were provided.
CBA has had to refund $118.5m to customers – more than half the $219m in compensation paid by the big four banks and AMP over the past decade – to more than 310,000 financial advice customers.
As the royal commission rolled on into the afternoon, the former prime minister Tony Abbott was asked during his regular Wednesday afternoon interview on 2GB radio if he could now finally admit he was wrong to oppose a banking royal commission.
Abbott said “given where we were at” he suspected the royal commission “has served a useful purpose, and continue to serve a useful purpose”.
“There may have been, at least earlier, a better way of doing this but given the situation we are now in there is absolutely no doubt this royal commission is casting a spotlight on a lot of banking practices that frankly are contemptible, absolutely contemptible, unethical, probably illegal and just wrong,” he said.
In the afternoon session of the royal commission, senior counsel assisting Michael Hodge appeared to become frustrated with the executive general manager of Private Bank at CBA, Marianne Perkovic, and her repeated attempts to provide “context” with her answers, eventually accusing her of “dissembling”.
Hodge had spent a large amount of time asking Perkovic about an internal CBA memo from 2012 that discussed clients of CBA’s financial planning division that were still paying fees for financial advice despite their financial planners having moved on.
Hodge said it took two years before CBA reported the problem to Asic and wanted to know why, and Perkovic argued the memo was only pointing out that CBA should investigate the potential problem, not that it showed CBA knew there was a problem.
Hodge said: “Ms Perkovic, is the reason that you are dissembling in the way that you are dissembling because you are trying to pre-emptively explain why it took CFPL (Commonwealth Financial Planning Limited) more than two years to notify Asic of its breach?”
Perkovic replied: “I’m just trying to explain to you, in this two-year period before we actually identified that we actually had a problem with OGS (ongoing service), as to what we were solving for with the information that was in front of us in a broader context of the business.”
The head of the royal commission, Kenneth Hayne, repeatedly cautioned Perkovic to answer Hodge’s questions properly.
Before this week’s royal commission hearing, CBA and Asic announced an agreement over an advice refund program involving two bank subsidiaries.
Commonwealth Financial Planning and the now-closed BW Financial Advice have paid $88.6m in compensation to 31,500 customers who did not receive an annual review as part of their financial advice service package.
On Friday the CBA’s chief executive, Matt Comyn, apologised for the bank failing customers in its advice businesses over the past decade, saying it was unacceptable.