Can the big four banks win back the trust of their financial planning customers?
That remains to be seen.
A Senate committee calling for a Royal Commission into the Commonwealth Bank of Australia's (ASX: CBA) financial planning scandal has tarnished the reputation of Australia's big four banks.
Between them, the big four control an estimated 7% of Australia's financial planning industry, along with AMP Limited (ASX: AMP). CBA made $914 million from its financial planning arm in 2013, while Westpac Banking Corporation (ASX: WBC) saw $737 million in revenues through subsidiary BT Financial.
The committee found that CBA had 'sought to avoid scrutiny and covered up the misconduct', 'fabricated documents and forged signatures', which had led to more than a thousand customers being given inappropriate advice, which resulted in them suffering losses. CBA has paid out more than $52 million to victims, but that figure could soar much higher, with the bank forced to reopen its compensation process for up to 4,000 customers.
How anyone could trust one of CBA's financial advisers to give them unbiased advice now is hard to imagine, and has likely created a cloud over the other major banks' financial planners as well. Already the Senate Committee has said the Australian Securities and Investment Commission (ASIC) needs to conduct 'intensive surveillance" of other financial advice businesses, including Macquarie Group Ltd's (ASX: MQG) Private Wealth division.
At the same time, the Federal government has announced plans to water down Future of Financial Advice (FoFA) rules, and seemingly allow bank tellers, sales staff and their planners to receive commissions and bonuses for selling their employer's products to consumers.
As David Whitely from Industry Super Australia says, "The purpose of FoFA was to separate advice from sales. These changes will…simply mean that once again, financial planners will be regarded as product floggers. We will, in my view, have a repeat of the scandals that we've seen over the past few years."
Anyone getting personal financial advice from a planner associated with one of Australia's big four banks may want to get a second opinion.
