20 April 2018Hot off the Press
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry heard on Thursday that deceased customers of the Commonwealth Bank of Australia (CBA) were being charged fees for services they did not receive.
Court Financial, a subsidiary of CBA, charged these fees despite being aware that the customer had died — in one instance Court Financial was charging fees for more than a decade after the customer’s death.
These revelations followed testimony from CBA executive Marianne Perkovic on Wednesday that another CBA subsidiary, Commonwealth Financial Planning Limited, charged fees without providing services to customers.
Ms Perkovic conceded on Thursday that the bank was aware of the problem, but alleged that they were believed to be “isolated complaints” until recognised as “systemic” in 2014, even though there evidence arose as early as 2008.
The Royal Commission heard from Ms Perkovic that the CBA exploited grandfathering provisions in future of financial advice laws, allowing the bank to continue receiving commissions from customers who were signed up prior to July 2013.
Although many of these arrangements would now be illegal, the bank has relied on what were intended to be transitional arrangements to receive payments indefinitely.
The Royal Commission then heard from Jacqueline McDowall, a former nurse who told the Commission she and her husband were given poor financial advice from Westpac.
Ms McDowall said they had been advised by Westpac financial planner Krish Mahadevan and business banker Karl Sleiman that they could use their $200,000 in superannuation funds and a bank loan to set up a bed and breakfast. They were advised that this would be feasible through a self-managed superannuation fund, and could borrow up to $2 million.
After selling their home, they were told that this was impossible because superannuation funds cannot be used to buy the home you live in, even if you have paying guests at the same time.
Westpac charged Ms McDowall over $43,000 upfront, with $5471 in fees per annum. Ms McDowall alleged that Mr Mahadevan did not tell her that he would earn up to $16,690 in commissions from signing them up to new insurance policies and opening the self-managed superannuation fund.
Ms McDowall and her husband are now without a business or their own home, and are renting. They received some compensation through the Financial Services Ombudsman, but Ms McDowall says this was a slow and “very difficult” process.
Rowena Orr QC, senior Counsel assisting the Royal Commission, asked Westpac executive Michael Wright why the bank put him forward to answer questions, instead of Mr Mahadevan and Mr Sleiman.
Mr Wright said that “we made a call that, since I was doing statement one on inappropriate advice, I would also do statement two.” He confirmed that he had spoken with Mr Mahadevan, but not Mr Sleiman, and both still work for Westpac.
Mr Wright conceded that the advice was poor, and that the charges — including $3000 not recorded in the advice given — “don’t make sense”. After being pressed by Ms Orr, he stated that the fees would have been for ongoing advice “to help them to realise their dreams over the journey”.
He also conceded that the advice “was not good advice. It was poor advice by default. It was not in the McDowalls’ best interests.”
A paraplanner who reviewed the draft advice had raised concerns that the McDowalls would pay substantial fees without any benefit if they failed to find a suitable property, including $22,524 per annum in insurance. Mr Mahadevan dismissed these concerns. Mr Wright denied that the paraplanner system of oversight could be easily overridden.
Mr Wright admitted he did not know whether Mr Mahadevan or Mr Sleiman had been disciplined, and that the incident was not reported to either the Australian Securities and Investments Commission or the Financial Planning Association.
Finance Minister Mathias Cormann and Financial Services Minister Kelly O’Dwyer have said that the Government will extend the deadline of the Royal Commission if Commissioner Kenneth Hayne requests more time.
Meanwhile, former Deputy Prime Minister Barnaby Joyce has said he was wrong to oppose the establishment of the Royal Commission, stating that the revelations that have emerged are “beyond disturbing”.