Banking royal commission: ANZ cases of poor advice soared

The Australian 12:00pm April 23, 2018

Ben Butler

The number of cases of shoddy advice given by financial planners at ANZ exploded by more than 40 times over eight years, even as the number of advisers working for the group fell.

Despite recognising the high risk that poor advice would lead to breaches of its financial services license, investigations by the corporate watchdog and customer compensation costs, ANZ was unable or unwilling to fix the problem for years, the financial services royal commission heard this morning.

Giving evidence to the commission this morning, ANZ’s chief risk officer for its digital and wealth businesses, Kylie Rixon, said the bank’s ability to detect poor advice had improved over the years.

In 2008, when it had 1379 planners, the bank detected just 60 instances of inappropriate advice across its four licensees.

This soared as high as 2810 cases in 2015, before dropping to 2499 the following year.

The commission has heard that since 2008, the number of advisers at ANZ, both directly employed by the bank’s financial planning arm and working as contractors through one of its aligned dealer groups, has fallen.

It currently has about 500 fewer planners than it did in 2008, the commission heard.

Ms Rixon agreed with counsel assisting the commission, Rowena Orr, QC, that some of ANZ’s risk controls had previously been inadequate.

“We are detecting many more instances now, we’re detecting many more instances because our control environment has improved and because we’ve also done lookbacks over other years and detected more instances,” Ms Rixon told the commission.

She said she could not be sure what the correct number should be in the earlier periods when numbers were low.

“Many of our controls have improved over that period and our supervision numbers have increased,” she said.

Ms Rixon said ANZ changed the way it paid advisers in reaction to Future of Financial Advice laws, introduced by Labor in 2013, that reduced the number of lucrative trailing commissions they received and introduced a duty for them to act in the best interests of their clients.

“From the time that FOFA was introduced there was a growing realisation that there needed to be greater emphasis in the remuneration incentives based on other factors and there were also regulatory impediments that were driving changes to the remuneration as well,” she said.

An ANZ risk committee accepted the “high” risk of systemically poor advice repeatedly over four years between 2013 and 2017, documents shown to the commission show.

Ms Rixon said repeated attempts to come up with technological fixes had failed or taken longer than they should have.

Commissioner Kenneth Hayne asked Ms Rixon whether it was possible to come up with a non-technological fix.

“I think it can be to an extent … and you can see we’ve improved our requirements for supervision,” Ms Rixon said.

“There is no-one checking every single piece of advice that goes out the door.”

This morning, ANZ told the market it expected to pay $50m in legal and other royal commission costs in the year to September 30.

“ANZ is committed to engaging with the inquiry in an open, constructive and transparent manner,” the bank told the market.

“ANZ is unable to predict the outcome of the inquiry or its impact on the bank or broader industry.”