- Banks announced changes to their code of practice, outlawing charging fees for no service.
- The banks will also seek legislation to end grandfathered payments and trailing commissions for financial advisers.
- The industry’s Banking Code of Practice was completely rewritten only in July this year.
Australia’s banks are making further changes to their recently rewritten code of practice to overhaul the way they manage a customer’s estate when they have died and end the charging of fees for no service.
The move follows evidence in the financial services royal commission that dead people were charged for advice and some deceased were also billed for life insurance.
“It has always been unacceptable for any organisations to charge fees without providing a service,” says Anna Bligh, the CEO of the Australian Banking Association.
“This announcement will put beyond the shadow of a doubt that this practice has no place in Australia’s banking industry.”
The banks in July announced a new Banking Code of Practice, a complete rewrite approved by corporate regulator ASIC, billed as a “stronger commitment to ethical behaviour, responsible lending, greater financial protection and increased transparency”.
The banks today also announced they would seek legislation to end grandfathered payments and trailing commissions, a key area creating a conflict between income for financial advisers and the best interests of customers.
The key changes in response to the royal commission include:
- Ending fees for no service. Banks will change the way they manage ongoing financial advice, contacting customers to confirm what advice is required and only charging for what is provided.
- Changing the Banking Code of Practice to improve the way banks manage a deceased estate. Once notified of a death, banks will identify fees that are for products and services that can no longer be provided, stop charging those fees and refund any paid.
- Seek legislative changes to the Future of Financial Advice reforms to remove all provisions that allow grandfathered payments and trail commissions in financial advice.
Bligh says the initiatives address two of the strongest concerns raised by the royal commission’s interim report.
“Banks will change the way they manage a customers account, proactively contacting them to confirm what services are required for their investments and only charging for those provided,” she says.
“This issue of charging fees without service, particularly when customers have recently died, was raised during the Royal Commission and identified as unacceptable.
“When someone loses a loved one, they need support and compassion as they finalise their loved one’s financial affairs. Charging ongoing advice fees to dead people is clearly unacceptable.”
The banks are working with customers to refund those charged a fee where no service was provided.
Latest ASIC data indicates the banks will pay out more than $1 billion in refunds.
“In addition to these changes the industry is supporting legislation to remove grandfathering provisions in relation to financial advice,” Bligh says.
“This is another important piece in the puzzle of ensuring there are no conflicts for advisers.”