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NAB prohibits advisers from forming new broker relationships

by Reporter7 minute read

The big four bank has suspended the ability for financial advisers to establish new broker relationships under certain arrangements, as investigations continue into potential prohibited conflicted remuneration.

The move was made on Monday (16 April) during the first day of the second round of hearings for the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Since 1 July 2013, financial advisers have been prohibited from receiving particular benefits known as conflicted remuneration. These comprise remuneration structures that could reasonably be expected to influence the choice of financial product recommended by the financial adviser, or to influence the financial advice given by the adviser.

Senior counsel assisting Rowena Orr outlined at the hearing that a statement provided to the commission by Ross Barnwell, general manager for NAB’s advice business, revealed some of the steps that the bank has taken to ensure its advisers do not receive prohibited conflicted remuneration.


While these measures mostly involved providing training and guidance to its advisers about conflicted remuneration, Mr Barnwell noted that NAB recently introduced a working group with responsibility for reviewing and designing controls to prevent advisers from receiving conflicted remuneration.

According to Mr Barnwell, in each year since 2013, NAB and its associated licensees have paid hundreds of millions of dollars — and, in some years, in excess of half a billion dollars — in permitted conflicted remuneration.

Notably, Mr Barnwell acknowledged that there have also been a number of instances where NAB had provided (or NAB advisers had received) benefits that were prohibited conflicted remuneration.

Ms Orr said: “From 1 July 2013 to the present, NAB and its associated entities have paid referral partners under its introducer program and other referral arrangements to refer potential loan customers to NAB.

Where these fees were paid to financial advisers, they might reasonably have been expected to influence the advice provided.”

NAB’s introducer program has been a topic of focus during the commission, after the first round of hearings revealed that the program involved cases of bribery and fraud.

The bank is now reportedly investigating whether its advisers were paid under the introducer program for recommending a client to NAB for a loan.

While the investigation continues, NAB has suspended the ability for financial advisers to establish new broker relationships under the introducer program and other referral arrangements

However, NAB was not the only major bank to reveal that its advisers may have received benefits that constitute prohibited conflicted remuneration.

Westpac outlined that while it has generated a banned commission report, which identifies payments that have been received from product providers, some breaches may have occurred.

The hearing revealed that in each year since 2013, Westpac has paid around $200 million in payments that constitute permitted conflicted remuneration, but that since 1 July 2013, there had been a number of instances where Westpac has provided (or Westpac advisers have received) benefits that constitute prohibited conflicted remuneration.

These included $24,844 in payments received under a brokerage referral arrangement between 1 July 2013 and 5 May 2015, among other instances.

Royal commission update

While the first round of hearings focused on consumer lending, including mortgage broking, the second round of hearings is looking at financial advice.

The hearings, which began on Monday (16 April) and will run until next Friday (27 April), will cover a range of topics, including:

  • the charging of fees for financial advice that is not provided or not provided in full (“fees for no service”);
  • the provision of inappropriate financial advice;
  • instances of improper conduct by financial advisers, including misappropriation of customer funds; and
  • disciplinary and regulatory regime for dealing with misconduct by financial advisers (among other topics).

The commission outlined that in the 12 months to July 2016, approximately 2.3 million Australians aged 18 and over received financial advice from a financial planner, noting that the sector was estimated to be worth $4.6 billion in revenue in the year 2015–16.

Rowena Orr, counsel assisting the royal commission, outlined that there were 25,386 financial advisers registered in Australia and that the four major banks and AMP collectively held a market share of about 48 per cent (by industry revenue as at late 2017).

About 30 per cent of the total number of financial advisers on ASIC’s register work for one of the major banks, Ms Orr continued, adding that approximately a quarter of industry revenue was from loan and investment advice (i.e. determining the most suitable loan product and financial asset allocation for a consumer).

During the first day of the second round of hearings, it was revealed that all four major banks and AMP admitted that there were possible breaches of the law in relation to fees for no service, including instances where customers where charged a fee for service despite no adviser being allocated to them or for annual reviews that never took place.

ASIC deputy chair Peter Kell told the commission that the regulator was aware of eight entities in total that have reported ‘fees for no service’ breaches.

These eight institutions, Mr Kell said, also included Yellow Brick Road, First State Super (specifically, its financial advice arm StatePlus) and Bendigo and Adelaide Bank.

Further, Ms Orr revealed that a “significant proportion” of submissions the commission had received so far related to “inappropriate advice” received from financial advisers, with “many” referring to financial adviser providing advice “encouraging Australians to engage in lending they are not capable of servicing over the long term”.

She outlined that some submissions related to advisers “falsifying documentation to support higher levels of lending or more aggressive investment strategies”.

Other themes from the public submissions included inappropriate advice in relation to investing savings and funds borrowed against private property where the customer had requested conservative or low-risk investments.

The royal commission will release an interim report by 30 September and a final report by February 2019.

[Related: Financial planners not needed in credit space: CBA]

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