Bill for fee-for-no-service scandal grinds towards $2bn

Provisions by the finance sector for its fees-for-no-service scandal continue to grind towards $2bn and there’s more to come.

A Westpac Bank branch in Sydney. Hollie Adams/The Australian

Provisions by the financial services industry for its fees-for-no-service (FFNS) scandal continue to grind remorselessly towards $2 billion, with an unquantifiable contribution from non-salaried advisers still to come.

About half of $260 million in provisions announced by Westpac, which will hit first-half cash earnings to be announced on May 6, relate to the financial advice business.

Business and consumer banking covers the remainder.

As Westpac noted, the amount makes no allowance for refunds to customers of authorised representatives — the self-employed financial planners and planner groups operating under BT Financial Group’s licenses.

However, we’re now starting to get a handle on some ballpark figures.

Westpac revealed this morning that total fees received by authorised representatives from their customers in the decade 2008-18 came to $966m, of which $437m was received by representatives still operating under BT’s licenses.

The bank said it had not yet been able to make a reliable estimate of the proportion of fees that might need to be refunded.

For the group’s salaried financial planners, though, the proportion was 28 per cent, excluding interest costs.

Interest increased the fee refunds by about 50 per cent.

If the same proportion was applied to the authorised representatives, the refund bill would come to $270m, or $405m after interest costs.

The impact on cash earnings would be $283m.

Total customer remediation provisions for Westpac would then be $942m, including $118m in the 2017 financial year, $281m in 2018, $260m yesterday, and $283m for authorised representatives.

Not all of that, of course, relates to FFNS.

Westpac expects to provide more information about likely refunds to customers of authorised representatives at its half-year result.

In the meantime, the remediation program for salaried advisers is expected to wind up in the fourth quarter of this year.

Now that this is all out in the open and a reinvigorated ASIC is birching the banks at every opportunity, there is zero incentive for the industry to drag its heels, as the interest clock keeps ticking.

Under the compensation programs so far, AMP, ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac have paid or offered $350m to customers who were charged advice fees for no service at the end of January.

Before this morning’s extra $130m, the institutions had provisioned more than $800m for further FFNS.

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