biggest banks are taking up to six months to notify the corporate watchdog when they find misbehaving advisers and frequently fail to properly check the background of the financial planners they employ.
An n Securities and Investments Commission review released on Friday looked at how ‘s biggest financial institutions – and New Zealand Banking Group, Commonwealth Bank of , National Bank, Westpac Banking Corp and AMP – dealt with dishonest and incompetent financial advisers over a 5??-year period ending in June 2015.
The five firms represent almost 9000 financial advisers or 40 per cent of all financial advisers in .
ASIC discovered as part of its review that nearly half of advisers the banks knew to be dishonest, incompetent or fraudulent had not previously been disclosed to the watchdog.
Even in cases where they were referred to ASIC there was often a “considerable delay” between the bank first becoming aware of an issue and a breach report being filed. In one case just under six months had passed before a breach report was filed with ASIC.
The hiring policies of banks also came under strong criticism, with ASIC finding the banks failed to adequately probe the past conduct of prospective financial advisers. In some instances, when the banks did know there were concerns about “non compliances”, they hired the individual anyway.
Advisers who were sacked were sometimes allowed to join new organisations without the new employer being told of their dishonesty or fraud.
This, ASIC said, allowed “the circulation of non-compliant advisers within the financial advice industry” and had been pointed out to the banks for a decade.
“They need to take some responsibility here – the regulator can’t hold their hands,” ASIC deputy chairman Peter Kell said.
“There is a very deep frustration that both at the point of providing a reference, or checking a reference, when they are employing advisers, far too often firms have hidden the excuse that there are legal impediments. This is calling the issue out once and for all.”
He said he is now prepared to “name and shame” those banks who don’t comply with the practice, while acknowledging that banks, through their peak body their n Banking Association, were trying to address the issue.
The banks’ internal systems meant to keep their advisers in check were in many cases deficient. Just two out of 10 internal audits were found to be “effective”, while four out of every 10 were described as “ineffective”.
Mr Kell said the report should act as a “wake-up call” to the industry.
“The report card is not one as yet you will be overly pleased to show your parents,” he said.
ANZ wealth division group executive Alexis George expressed surprise at some findings, related to internal audits, but acknowledged “we need to work harder to maintain the trust of our customers” adding the bank would maintain a “hard-line approach” to financial advisers who do the wrong thing.
Commonwealth Bank executive general manager advice review program, Leif Gamertsfelder, reiterated the bank’s “zero tolerance for any inappropriate behaviour” while adding that since 2012 “we have invested over $30 million to improve systems”.
Westpac’s financial planning arm, BT Financial Group general manager, Mark Spiers, said it takes an “ongoing proactive approach” in ensuring the quality of its advice and had already initiated a review prior to ASIC’s involvement.
National Bank’s head of wealth, Andrew Hagger, said the bank had begun reviewing its wealth business aimed at lifting standards and improving culture in mid-2013 and was committed to constantly looking to “raise the bar for customers”.
An AMP spokesman said the company had been working closely with the regulator for a number of years to develop and implement improved processes for monitoring and compliance.