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Johnny Appleseed did it? This is the Banker and ASIC SPIN
A few bad apples? It’s a dodgy Bank Orchard filled with financial adviser's who were taught by banks to sell developer investments. Wait until the FA's find the courage to speak out and BLOW a very big WHISTLE on bank developer clientele!!!
18 March 2017
Adele Ferguson
It's the stuff of nightmares for customers. A report by the corporate regulator into the financial planning arms of the big four banks and AMP found 185 planners were "dishonest, illegal, deceptive and/or fraudulent" in their dealings with customers.
So far 26 have been banned, 60 are no longer in the industry and in 10 cases there was insufficient evidence. But at least 75 are still at large, offering financial advice to their unsuspecting customers.
We don't know who these advisers are or where they are working. ASIC won't say. What we do know is their conduct has been egregious and ASIC is investigating them.
The findings are an unprecedented outing of the sector.
While the numbers sound large, they in fact underestimate the real number of dodgy planners for a number of reasons.
Firstly, the tally excludes Macquarie Bank. Secondly, from its own observations of the big four and AMP the watchdog admits that: "identifying high-risk advisers and customers affected by non-compliant advice who fall within the scope of a review and remediation has been a significant challenge for the institutions".
It says in the past indicators commonly used to identify high-risk advisers and affected customers for remediation came mainly from customer complaints and adviser audit outcomes.
Given a lot of customers don't know if they have been given inappropriate advice or have been the victims of forgery or fraud, this is a poor indicator. And when it comes to the track record of audit outcomes, including how they are conducted, it is little wonder many didn't get caught.
Bigger Scandal
This is scandalous enough, but an even bigger scandal is that despite all the bad publicity and the blowtorch that has been aimed at the industry in the past few years, the big four and AMP are still not doing enough to notify ASIC of any wrongdoing by their staff.
Nearly half of the advisers were not notified to ASIC until the licensees identified and reported their advisers to us in response to ASIC's direction. Why not?
According to ASIC, "all of the institutions publicly state that their core values include being customer focused, 'doing what is right' for customers, and acting with integrity.”
But when it comes to the crunch, those statements are largely just words.
For example, when advice licensees became aware of serious misconduct, the report confirms they often fail to protect future customers by adequately notifying ASIC or the recruiting licensee, in other words, they brushed it under the carpet. There were inadequate background and reference-checking processes and inadequate audit processes.
"When customers had potentially received non-compliant advice, the audit process failed to properly assess whether the adviser had demonstrated compliance with the best interests duty and other related obligations, so that affected customers were not always identified or properly remediated, where necessary, and advisers providing non-compliant advice remained undetected," it says.
Given this, it is a wonder ASIC still came up with 185 potentially dodgy planners.
Apples aplenty
It makes a mockery of the constant reference by bank chiefs that the dodgy goings on in the financial planning industry is the work of a "few bad apples", a term used to describe rogue financial advisers. This clearly isn't a few bad apples but an orchard.
The report says an estimated $30 million has been paid to 1347 customers following inappropriate advice during the period of this review. But this doesn't include the various compensation schemes run by CBA, including the original scheme that paid out $52 million, or the more recent open advice review program, which, at August 31 had offered almost $10 million in compensation.
Nor does it include the rampant misconduct at Macquarie.
Macquarie entered an enforceable undertaking in January last year, more than two years after ASIC first became aware of the extent of misconduct in Macquarie Private Wealth.But it would have been a lot more powerful if the regulator took the next step and put names to the institutions. That way we would know which ones were doing better than others in terms of breaching dodgy advisers. We would also know which ones continue to turn a blind eye.
ASIC deputy chairman Peter Kell says the industry "isn't there yet". He is right. Kell wants law reform, including higher penalties, beefed-up powers and strengthening breach reporting requirements.
This is part of the solution but the time has come to name and shame institutions. There is too much at risk: people's life savings.
But the industry will push back. The government will need to stand strong if it genuinely wants to repair trust among customers and will get its opportunity in the shape of the review into ASIC's powers.
Industry response
ASIC is hopeful that the Australian Bankers' Association's recently announced Reference Checking and Information Sharing Protocol for financial planners will be a panacea.
The problem with this is licensees don't have an appetite to do reference checking. They peddle the excuse of privacy invasions and potential defamation suits if they say too much about a financial adviser.
But the reality is they don't want to air their dirty laundry and if an institution is poaching an adviser or group of advisers they won't want to tip off the institution in advance by checking out their references.
If things are to get better there needs to be a will rather than platitudes for reform. There also needs to be better co-operation between the gatekeepers.
For instance, ASIC needs to be able to get information from the Financial Ombudsman Service, professional bodies and professional indemnity insurers, which are repositories of complaints and misconduct. And there needs to be more work done on the national register, which has far too many gaps.
And the government? It just needs to get a move on.