SYDNEY •The Australia and New Zealand Banking Group (ANZ) said it would stop paying financial planners bonuses for selling its products, the first of the country's top lenders to change business practices amid a powerful inquiry into misconduct in the sector.
The move by Australia's No. 3 lender yesterday shows how the Royal Commission into the finance industry is having immediate and far-reaching effects, and puts pressure on other major banks to follow in its footsteps.
Three months into the year-long inquiry, the industry has been embarrassed by allegations of planners taking bonuses and commissions for selling inappropriate and poorly performing products or, in some cases, for no products at all.
Senior ANZ representatives have testified that 5 per cent of financial planning product sales were inappropriate, with one employee testifying that the bank pushed for a sales agreement with a financial planner who had 700 clients despite knowing he had failed regulatory checks.
"We know it has taken too long for changes to occur, so where we see solutions, we will act," chief executive Shayne Elliott said in a statement, which did not mention the Royal Commission.
ANZ, which will have about 300 financial planners after selling most of its advice businesses to IOOF later this year, said it would fire planners who provided inappropriate advice and finish compensating about 9,000 customers who had received bad advice by the year end.
The overhaul marks a reversal for ANZ which, along with the rest of the industry and the conservative federal government, argued until late last year that a Royal Commission was unnecessary because the existing regulatory system was working.
Just last week, it flagged slower revenue growth on more cautious lending practices in the wake of the inquiry, as well as due to more regulation and fierce competition.
ANZ did not say how it would change its pay structure for financial planners, except to say it would "remove all sales incentives for bonuses and only assess performance on customer satisfaction, ANZ values, and risk and compliance standards".
The Commonwealth Bank of Australia, Westpac Banking Corporation and National Australia Bank did not respond to requests for comment on whether they were considering similar action.
"They are all under pressure to make changes (to) vertical integration and remove warped incentives," said Mr Hugh Dive, chief investment officer at Atlas Funds Management. "After ANZ, the others will follow suit."