Federal Court fines Mercer Australia $12m over fees for no service

The Australian arm of financial services giant Mercer has been slapped with a $12 million penalty after it was found to be wrongly billing thousands of its customers for services that were never provided.  

The Federal Court ruled in favour of the corporate watchdog, the Australian Securities and Investment Commission (ASIC), which alleged Mercer Australia had been billing its customers for almost three years for services they had never received.  

ASIC also alleged Mercer sent documents to customers on the assumption they were accurate fee disclosure notices, but in reality, failed to comply with current regulations.

“These failures occurred in part because Mercer failed to maintain the necessary systems and processes to ensure that the disclosure statements sent to customers were timely and accurate,” ASIC deputy chair Sarah Court said.

“This is a significant penalty for a financial advice provider. Mercer failed in its obligation to provide fee disclosure statements to clients, provided misleading information in the disclosure statements it did provide, and charged its clients fees for services it was not entitled to charge.”

“ASIC expects businesses to invest properly in their compliance systems. As today’s outcome shows, if they fail to do so, they face significant penalties.”

The violations involved breaches of both the Corporations Act and ASIC Act over a three-year period from 1 July 2016 to 30 June 2019.

During that time, Mercer failed to invite more than 800 clients to attend annual review meetings despite being entitled to attend, failed to provide fee disclosure statements to 500-plus clients, and issued more than 3,000 non-compliant fee disclosure statements to around 2,000 clients.

Mercer was also found to have charged 761 clients a combined total of more than $4.7 million in fees for services clients did not receive.

Mercer has already paid out $45 million in compensation after more than 3,400 of its customers were charged fees for financial advice that may not have been provided between January 2012 to June 2019. 

The court found that Mercer’s most recent failures were caused by having inadequate systems and processes in place to ensure that its fee disclosure statements complied with financial services laws.

Justice Timothy McEvoy noted in his judgment that the “contraventions in the present case were extremely serious.”

“They were large in number, many clients were affected, large sums were involved, and they continued over a long period of time,” he added.

“The community is entitled to expect that robust systems and processes will be put in place and maintained in the market for financial services to ensure that conduct of the kind which has occurred in this case does not occur.”

While Mercer had proposed a $8.5 million penalty, ASIC pushed for a harsher punishment by suggesting a $20 million fine.

Justice McEvoy determined the corporate watchdog’s proposed penalty was “excessive”.

“Weighing matters carefully, I have determined that Mercer should be ordered to pay a pecuniary penalty of $12 million,” Justice McEvoy said.

“MFA has remediated these clients and others affected earlier. It cooperated with ASIC in the investigation, commencement and finalisation of the proceeding. MFA made full admissions at the earliest opportunity.”

In recent years, ASIC has taken numerous financial institutions to court over fees for no-service breaches, including banking giant Westpac (ASX: WBC), which was fined $40 million last year for charging $10.9 million in advice fees to more than 11,800 deceased customers.

Another culprit is AMP Limited Group (ASX: AMP), a Sydney-based financial services company that was charged with a $14.5 million fine in 2021 after the court found five entities that are or were part of AMP charged fees for services that were not provided to 1,452 superannuation members. 

Other companies slammed with fees for no-service penalties include the National Australia Bank (ASX: NAB) and Aware Financial Services, which were forced to pay $18.5 million and $20 million in fines respectively.