Fees for no service: Still a hot topic

One of the significant findings from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) was that Australians were being charged 'fees for no service'. That is, Australians were being charged ongoing advice fees where no advice was actually provided to the client-with those fees often being charged invisibly by being deducted from the client's accounts or superannuation accounts. And this conduct was widespread.

Commissioner Kenneth Hayne noted that by August 2018, Australian financial services licence (AFSL) holders had paid approximately $260 million in compensation to clients, including interest on the amount of earnings lost. It was estimated at that time, that the total compensation to be paid in relation to 'fees for no service' was approximately $850 million.

In March 2023, the Australian Securities and Investments Commission (ASIC) reported that six of Australia's largest banking and financial services institutions had paid or offered a total of $4.7 billion in compensation to customers who suffered loss or detriment because of fees for no service misconduct or non-compliant advice.

Commissioner Hayne noted that there were many reasons why a client could not receive the promised services, including:

• that the adviser linked to the client was no longer linked to the client
• the adviser may have left the licensee
• the adviser may have had too many assigned clients to be able to service them all, or
• the client may have died.

Commissioner Hayne also observed that, in many cases, the fees were charged without the AFS licensee knowing or asking whether the services had been provided to the client and, in many cases, where the licensee's records showed that the services could not be provided. Commissioner Hayne also noted that in circumstances where there was no linked adviser, the licensee kept the fees charged for itself.[3]

During the Royal Commission's hearings, some people who gave evidence suggested that the fees for no service issue came about because of a series of 'processing errors' or 'poor systems and carelessness'.