Saturday, 15 October 2022

Unexpected 'fee for no service' refund

As a registered Financial Adviser (sans clients) I'm all too familiar with the litany of complaints the 'Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry' uncovered several years ago here in Australia. At the time I wasn't surprised that there were some Financial Advisers who had given inappropriate advice to their clients, given that up to then there was a fairly lax requirement to become registered as a financial planner  (a short course that could be done in one week to get 'RG146' certification was all that was required) and quite a lot of 'advisers' were apparently either just product/insurance salesmen (and women) or else spruiked products based on which ones provided the highest initial and trailing commissions.

But I was rather surprised by the number of instances where advisers employed by the 'big four' banks not only pushed (recommended) products produced by the banks (or their associated companies), which was a major aspect of the profitability of 'vertical integration' (get existing banking customers to buy insurance or investment products sold by the banks themselves) but only then also provided little or no ongoing 'advice' (no matter how poor quality) to their 'clients' despite receiving ongoing trailing fees for years on end.

I had known that retail customers had a hard time avoiding paying ongoing 'trailing fees' to a financial adviser for any investment products they purchased, as I had found that nearly all investment product application forms at the time required the details of a financial adviser be filled in (who would then receive 'trailing commissions' of between 0% and 1% or more). If a retail customer didn't fill in any adviser details the relevant 'trailing fee' was simply retained by the product provider! I had managed (as a retail customer) to at least get 50% of such 'trailing fees' refunded on my investments by making use of a service by 'YourShare' who refunded 50% of such fees (you were paying 50% fees for basically just aggregating the fees and sending you a cheque each years, but at least they were doing *something* in exchange for the fees received).

I was therefore surprised to receive a letter from one of the 'big four' banks last week advising that their subsidiary financial planning company had received such trailing fees for one of my investments between August 2008 and April 2010 (probably before I signed up with YourShare) and because the didn't have records to prove I had received any relevant 'services' in exchange for the fees, the bank was refunding the $629.16 of fees paid, plus interest (at 6% pa) on that amount for the subsequent years (adding up to another $1,202.86 in interest). Quite an unexpected 'windfall' of $1,832.02.

I'll have to check up on the ATO webpage relating to 'Compensation paid from financial institutions'. I probably won't owe tax on the actual fee amounts (as such fees would have been tax deductible if I'd been aware of them, but I never claimed a deduction) but the interest component will probably be taxed as 'other income' or 'interest received'.

Subscribe to Enough Wealth. Copyright 2006-2022

1 comment:

mOOm said...

When I first started investing there was a 4% "load" or application fee to buy a managed fund. The fund company kept the fee if you didn't have an advisor. Then CommSec introduced buying funds without loads which was so great!