The Commonwealth Bank of Australia (CBA) and the Australia and New Zealand Banking Group (ANZ) have agreed to change the way they distribute self-managed superannuation funds (SMSFs) - one of the main wrappers for structured products in Australia, to their customers.
The Australian Securities and Investments Commission (Asic) has accepted court enforceable undertakings from the two banks after an investigation found a common practice of offering those products to customers at the conclusion of a fact-finding process about customers' overall banking arrangements. CBA and ANZ have been also asked to each make an AUD$1.25 million community benefit payment.
According to the regulator, both banks failed to address conflicts of interest regarding their financial advice processes because the proximity between the fact-finding process and the discussion about the products was leading CBA staff and ANZ staff to provide personal advice to customers about their superannuation. Branch staff for both CBA and ANZ were only authorised to provide general advice about the CBA Essential Super and ANZ's Smart Choice Super.
Under the current regulatory guidelines, stricter consumer protection laws apply to financial services licensees when their representatives give personal advice about complex financial products such as superannuation than when they provide general advice about those products. This includes the requirement, with personal advice, to give a customer a 'statement of advice' and to act in the customer's best interests. People who give personal advice about complex products are also required to meet higher training standards, stated the regulator.
Asic was concerned that customers may have thought, due to the proximity of the fact-finding process to the offer of the products, that the bank's branch staff were considering risks specific to the customer when this was not the case.
Following the court decision prevents CBA from distributing Essential Super in conjunction with a Financial Health Check and ANZ from distributing Smart Choice Super in conjunction with an A-Z Review. CBA chose to suspend the distribution of Essential Super in CBA branches in October 2017.
'ASIC will continue to proactively monitor how complex financial products such as superannuation are sold,' said Asic's deputy chair Peter Kell, adding that the regulator's actions underline the importance for financial services licensees to ensure that customers understand the nature of advice they are receiving about their superannuation.
ANZ said that by 18 August, 2018 its staff members will no longer discuss ANZ Smart Choice Super 'immediately before, during, after or in conjunction with a needs-based conversation with customers'. Smart Choice Super will remain available through ANZ’s digital channels, anz.com and the ANZ app. CBA has paused all new account openings and 'will undertake a review of how Essential Super is offered and develop a revised conversation framework'.
These actions are part of Asic's Wealth Management Project which was established in October 2014 to lift the standards of major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, Macquarie and AMP).
The Australian watchdog has already forced 10 Australian financial firms including Westpac Banking Corp, Sentry Financial Services, Meritum Financial Group, MASU Financial Management, Madison Financial Group, HSBC Bank Australia, Genesys Wealth Advisers, FSS Advisory, Count Financial and Consultum Financial Adviser to undertake corrective action to address shortcomings around advice on complex structured investment products.
Asic has focused its scrutiny on complex products during the last few years with a number of regulatory updates including its Report 377 Review of advice on retail structured products, the Report 384 Regulating complex products, the Financial System Inquiry as well as corrective actions against a number of providers for shortcomings in financial advice relating to complex products.
According to SRP data, the five institutions reviewed by the Australian regulator have distributed a total of 1,007 structured products in and outside of Australia since 2001. ANZ and its subsidiaries have distributed 1,507 products, ahead of Westpac which has 232 (all in Australia), while NAB, CBA and AMP have sold 193 products, 42 products and five products, respectively.
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