ANZ's new two strikes rule for advisers

Summary: ANZ has announced new sweeping changes aimed at cracking down on the provision of poor financial advice.

Key take-out: One has to question why sales incentives were still in place after the ban on conflicted remuneration structures.

Some would argue it's a move that's too little, too late, for the tainted financial advice industry.

But ANZ Banking Group has become the first major bank to completely overhaul its financial advice structure by announcing a series of measures aimed at improving the quality of its financial planning and customer remediation services.

That includes scrapping all sales incentives for financial planning bonuses, and terminating the services of any advisers who fail two of the bank's internal compliance audits.

The bank says it will quickly remove planners that provide inappropriate advice, demand new professional standards, and speed up customer remediation.

ANZ's announcement follows testimony to the Royal Commission into the Banking, Superannuation and Financial Services Industry that ANZ allowed a financial adviser who continually failed audits and reviews by the bank to keep working, even after he was suspended.

The adviser in question was found to have failed to keep appropriate documentation of dealings with clients for several years, advised them to buy complex and risky investments not approved by the bank, and had breached the Corporations Act numerous times in the course of providing advice.

Separately, the Australian Securities and Investments Commission (ASIC) last month accepted a forcible undertaking from ANZ for the bank to make a $3 million community benefit payment and to improve its systems and processes.

The bank was found to have not given reviews to more than 10,000 ‘Prime Access' customers from 2006 to 2013, despite taking annual fees for a documented review of customers' financial plans.

Commenting on the new measures, ANZ Chief Executive Officer Shayne Elliott said: “Financial advice is an important part of the services we offer, but it's also an area where we've failed some of our customers.

“We know it has taken too long for changes to occur, so where we see solutions we will act. That's why we are getting on with these initiatives now,” he said.

“It is important customers feel confident in the quality and trustworthiness of seeking advice so they can save for retirement and protect the things they care about in a complex system,” Mr Elliott said.

The new initiatives mean ANZ will:

• Remove all sales incentives for bonuses and only assess performance on customer satisfaction, ANZ values, and risk and compliance standards.
• Quickly identify and remove planners that provide inappropriate advice – two audit fails and their contract will be terminated.
• Only employ new planners with a relevant under graduate degree and industry certification, and require existing planners to be enrolled in further necessary training by January 2019.
• Commit to completing compensation on about 9000 current inappropriate advice cases by the end of the year.
• Offer an advice review, at no expense, for any of our financial planning customers who may have concerns about their current financial position.

The Future of Financial Advice (FOFA) legislation introduced by the Federal Government in 2012 banned conflicted remuneration structures, including commissions and volume-based payments in relation to the distribution of, and advice about a range of retail investment products. They also imposed a duty of care on financial advisers to act in the best interests of their clients.

Yet, in January this year, ASIC released a scathing report into the advice being provided by the major banks, which showed an alarming number of bank-employed advisers were providing biased advice to customers that was slanted towards recommending their in-house products. No great surprises there.

The ANZ's latest move is commendable, although one has to wonder why sales incentives on financial planning bonuses were still allowed following FOFA in the first place.

At last the banks are taking some action, but their poor record speaks for itself.