We know this is unacceptable and I unreservedly apologise to all customers affected. Poor advice
provided by some of our advisers between 2003 to 2012 caused financial loss and distress and I am
truly sorry for that.

Today we are announcing our Open Advice Review program. This is a new, far reaching program of
review and remediation with independent oversight, to deliver fair and consistent outcomes for
customers of CFP and FWL. This program demonstrates our commitment to make it right for our
customers.

At no cost to customers, the program will provide an assessment of the advice received, access to an
independent customer advocate and an independent review panel. The program will be fully
transparent to customers. To ensure we reach as many customers as possible there will be an
extensive national advertising campaign.

Before providing further details of the program, I’d like to make some more general comments.

The events considered by the Senate Committee occurred during the Global Financial Crisis, at a
time when most people, even when well advised, were losing money on their investments. The matter
of how to compensate affected customers was complicated. Our principle was to put customers back
in the position they would have been had they received suitable advice. We have already paid $52
million in compensation to more than 1,100 customers of specific advisers who were identified as
having provided poor advice.

We have transformed our CFP and FWL businesses, so that today they can perform the critical role of
providing quality and affordable financial advice to our customers. There have been changes in
management, structure and culture. We have also invested in new systems, implemented new
processes, enhanced adviser supervision and improved training.

However, I acknowledge there are views among some customers, and indeed in the Senate report
released last week, that our approach has not been sufficient for all our customers. We have listened
carefully and this program is a direct response to those concerns.

Open Advice Review program

The key features of the new program will be:

• Any customer who received advice from CFP and FWL between 1 September 2003 and 1
  July 2012 and has concerns regarding that advice will be able to call a dedicated number and
  request an assessment of any advice received in the review period;
• The review of the past advice will be conducted by a specialist Commonwealth Bank team;
  In conducting a review, the specialist team will share the information it has available with the customer and will invite the customer to provide information that the customer has available;
• Once the review is complete the customer will receive an assessment and the offer of an independent customer advocate funded by the Commonwealth Bank;
• A customer who does not agree or is concerned with the assessment will have the option of a further review by an independent panel, determining whether compensation is payable and, if so, how much;
• The Commonwealth Bank will be bound by the outcome of the panel’s determination. However, the customer will not be bound and will still have the option of taking the matter to the Financial Ombudsman Service or pursuing a claim in respect of the matter; and
• We will also have the process overseen by an independent expert who will make their periodic reports public.

The comprehensive nature of this Open Advice Review program demonstrates our commitment to delivering a fair and consistent outcome for customers. This program is in addition to the licence conditions previously announced by the Commonwealth Bank and the Australian Securities and Investments Commission.

In order to improve public confidence in the broader financial planning industry, we will advocate for improved adviser education and training, transparency in adviser quality such as the public adviser register and measures that improve the financial literacy of customers.

The way in which we have transformed our CFP and FWL businesses over the past three years shows our commitment to ensuring that the best interests of our customers are always our first and foremost consideration. This transformation brings CFP and FWL in line with our other businesses at the Commonwealth Bank.

I also want to acknowledge that there are 50,000 people who take pride in working for the Commonwealth Bank who also have felt let down by these events. Their focus on customers over many years has delivered excellent outcomes for over 10 million customers, the 800,000 Australian households who own our shares directly and the millions more who own them through their retirement funds, and the broader community around us.

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Household debts high by international standards.

Australian households have housing debt levels that are high by international standards.

Australian household debt ratios are relatively high by international standards. But there are important economic and legal differences between housing markets that can sustain marked variations in housing prices. In Australia, it is also important to understand the economic and social characteristics of the households that have the debt.

This note uses the considerable amount of research into household financial positions (published by the ABS, the RBA and other groups like the Melbourne Institute’s 2012 Household Income and Labour Dynamics in Australia (HILDA) report) which provide extensive insights into these household characteristics. The data and the surveys show that household debt has increased steadily over 2002‑2010, primarily due to growth in housing‑related debt.

But the data and the surveys also indicate that the households who carry the most debt typically have stable characteristics. On average, these households are couples with good health, high educational attainment, relatively high and stable incomes and in a prime age category. On balance, Australian households are in a good position to service their housing and other debt. The net asset positions of the households are also important in judging their capacity to cope with adverse economic developments.

One of the more interesting recent trends is that households have also increased their housing debt prepayments over 2012 and 2013, by leaving their repayments unchanged while interest rates fell. It is in line with the inclination to reduce housing and credit card debt since the GFC. Combined, these more cautionary shifts provide households with an important buffer to any negative economic shocks.

Some commentary on Australian household balance sheet positions conveys the impression that household debt levels are too high, leaving many households with unmanageable debt servicing commitments. The general line is that a significant number of households are at risk of financial ruin if their economic circumstances, like employment, change adversely. The surveys, and the experience of the past few decades, does not, in our view, support those lines of argument. The experience of the post‑Global Financial Crisis (GFC) period was a “stress test” that indicated the ability of Australian households to cope well with adverse economic developments.

Some of the commentary on Australian house prices, especially from offshore based groups, argues that there is a housing price “bubble” in Australia which will eventually burst and replicate the downward path of US and UK house prices through the 2008 to 2011 post‑GFC period. In our view, the US and UK housing market outcomes reflected the severe recessions and the housing demand/supply imbalances that hit the two economies after the GFC. Fortunately, through good luck and good management, Australia did not have a recession and the most important influence on the housing market’s outcomes, the unemployment rate, peaked at just under 6%. That was significantly below the peaks reached in the US and UK where the rates are moving lower but are still around 8%.

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