Provisions to "remediate" ongoing advice service fees will cost Westpac. Photo / 123RF
Provisions to "remediate" ongoing advice service fees will cost Westpac. Photo / 123RF
Westpac says its first-half cash earnings will be reduced by A$357 million ($378.3m) because of provisions to "remediate" ongoing advice service fees. However it still doesn't know the full extent of such costs.
The Sydney-based bank is announcing these provisions in the wake of Australia's royal commission into financial servicesthat highlighted fees being charged for poor or non-existent advice and even the charging of dead people.
Westpac will need to work out what of its advice falls into these categories, and how much it will cost to compensate customers.
Westpac says its A$510m pre-tax provision is based on a range of accounting assumptions relating to potential payments of A$297m before tax, A$138m before tax in interest costs and A$75m before tax in "remediation program costs."
The bank says its authorised advisors "who maintain direct relationships with their customers for financial planning services" received ongoing advice service fees of about A$966m between 2008 and 2018.
"That part of the current estimated provision which relates to potential payments represents around 31 per cent of the ongoing advice service fees collected over the period which compares to 28 per cent estimated for salaried planners," Westpac says.
"Westpac will continue to work with current and prior authorised representatives and their customers to determine where a payment should be provided. The final cost of remediation will not be known until all relevant information is available and payments have been made," it says.
"We are yet to finalise our remediation approach which may change following industry and regulator discussions."
Westpac chief executive Brian Hartzer says it is "disappointing that we have needed to make these provisions. I said at the end of last year that our priority was to deal with any outstanding issues and process payments as quickly as possible.
"As part of our 'get it right, put it right' initiative, we are fixing issues and are determined to ensure that they don't reoccur," Hartzer says.
