Thieves and liars want to get their hands on your money.
That’s the devastating picture of the financial planning industry painted by evidence at the banking royal commission over the past two weeks. After years of scandals in the sector, the behaviour of planners has still not lost its capacity to shock.
One planner tipped his clients into buying property through a business he secretly owned, another pretended to have qualifications he did not have, and another straight up stole hundreds of thousands of dollars from customers.
Evidence at the commission also shows that, as the supply of easy money from trailing commissions started to dwindle after a crackdown in 2013, planners turned to self-managed super funds to provide a honey pot of fees.
It may not be a coincidence that the number of SMSFs has exploded, with the sector growing 65 per cent over the past five years to become the largest segment in the $2.5 trillion super system.
With about 600,000 funds and more than $700 billion in assets, SMSFs now house a third of all the money in the super system. That growth, coupled with the phenomenal greed of financial planners, means the area is under close scrutiny by the corporate regulator.
Last week, Australian Securities & Investments Commission deputy chairman Peter Kell said a survey of planners — part of a report due any day now — found that 90 per cent of times an adviser tells a client to set up an SMSF that advice is not in the client’s best interest.
He pointed to the “one size fits all” model beloved by planners, “where clients, irrespective of their circumstances, get placed into a very, very similar strategy ... particularly in the SMSF context where people are being encouraged to undertake borrowing to invest in real property”.
Evidence at the commission has explored the root causes of bad behaviour across the industry — the steady stream of incentives enjoyed by planners and their employers to tip customers into unsuitable products.
Kenneth Hayne puts financial planners under spotlight. Illustration: Sturt Krygsman
Three of the planners the commission has tarred and feathered are still in the business, working at independent financial planning group Dover, whose boss Terry McMaster collapsed in the witness stand on Thursday as he was being examined about his company’s unusual business practices.
The Weekend Australian understands ASIC continues to probe Dover as part of a wideranging and long running investigation.
And yet it is to this industry that the corporate regulator has previously said consumers should turn to for advice on what to do with their savings. In a 2010 report, ASIC complained that “many consumers are ill-equipped to make sound financial decisions and would benefit from better access to financial advice”.
“The need for improved access to financial advice has been recognised by the Australian government, ASIC, industry and consumer groups alike.”
Eight years later, this attitude seems naive — as does the proposition that “consumer mistrust of financial planners” can be cured by ASIC banning “bad apples from the advice industry”.
ASIC’s position has shifted, with senior executive Louise Macaulay yesterday admitting to the commission that it does not do enough to ban bad planners and finds it all but impossible to move against dodgy shops.
This week, the commission heard that even a quasi-judicial officer, a member of the Fair Work Commission, couldn’t get in front of an ASIC officer to air her concerns about dodgy advice.
When FWC member Donna McKenna, who gave evidence this week, turned up at ASIC’s Sydney offices on January 30 last year to complain about celebrity adviser Sam Henderson, she was instead told to fill in an online form.
“I said I knew I could make an online complaint, but I would very much like to speak to someone in person,” she said in a submission to the commission.
“I was told there was also a telephone down the corridor.”
Henderson had advised McKenna to roll her existing, safe-as-houses superannuation into an SMSF and borrow through it to invest in property — a move that would have immediately resulted in her losing $500,000 as a penalty for early redemption from her fund.
Henderson also tried to tip her into funds run by his firm, Henderson Maxwell, which the commission heard he recommends to 84 per cent of his clients.
McKenna said the advice was delivered in a series of meetings in late 2016 and early last year at Henderson Maxwell’s Sydney office — one of which was short because, he allegedly told her, “I’ve got a Christmas cocktail reception for about 100 clients.”
Henderson also had an undisclosed interest in the company that administers Henderson Maxwell’s funds and falsely claimed to clients to have a masters of commerce.
Before Tuesday, when he and McKenna appeared before the commission, Henderson was a media starlet, boasting of stints guest hosting on News Corp’s Sky Business and a regular column in Fairfax Media’s Australian Financial Review.
McKenna said these appearances were part of the reason she went to Henderson.
Both organisations dumped him on Tuesday and things got much worse yesterday when counsel assisting the commission, Rowena Orr QC, said he had committed a crime by providing defective disclosure to clients.
The commission has heard a 2016 disclosure document failed to tell would-be investors of Henderson’s stake in a company that managed the funds into which he tipped the vast majority of his clients.
His keynote speech to the SMSF Expo in Melbourne this weekend, alongside Financial Services Minister Kelly O’Dwyer and SMSF Association chief John Maroney, also appears to have evaporated.
All references to Henderson’s keynote address at the Expo were wiped from the event website without comment.
“Sam Henderson was called to the royal commission and is therefore no longer going to be at our Expo this weekend,” a spokeswoman said. She said Henderson “reached out to us earlier in the week to cancel his attendance”.
In a statement the SMSF Association said Henderson “does not hold an accreditation from the SMSF Association and has not had his knowledge and expertise validated by the association”.
The lobby group said it had “initiated disciplinary proceedings regarding Henderson’s conduct” and if misconduct was proven, “appropriate sanctions will be applied”.
“The SMSF Association is concerned by any instances of SMSFs being inappropriately recommended as a superannuation vehicle to consumers,” the SMSFA said.
While Henderson Maxwell has its own licence, three planners sledged at the commission over the past fortnight are now at McMaster’s Dover operation.
One is Victorian racing identity Adam Palmer, who the commission heard referred clients to a property company, Property Saint, in which he owned 60 per cent, a fact he neglected to tell his customers. Palmer has shares in at least five horses, most of which seem to go around at country tracks.
His most recent winner appears to have been Think I’m Dreaming, which saluted in race four at Sale, the “Brief Affair Maiden Plate”, on April 4.
Dover recruited Palmer in 2014 from AMP’s now-shuttered subsidiary Genesys, whose staff were told not to pass on details of his failed audits.
He’d gone to Genesys in 2013 from the sinking ship of Australian Financial Services, which was in the process of shutting down after ASIC slapped it with licence conditions in 2011.
Genesys was keen to get him because it wanted to get its hands on his bulging client book, Orr said yesterday.
On Thursday, McMaster denied the suggestion from counsel assisting the commission Mark Costello that Dover did not bother checking Palmer’s references until after he started with the company.
In the stand, McMaster defended the arrangement between Palmer and Property Saint, and sledged what he called “institutional AFSLs”, such as AMP, accusing them of not liking direct property investment because it does not increase funds under management.
Terrence McMaster answers questions during the Banking Royal Commission in Melbourne.
“When the full information came to light, we discovered it was genuine buyers advocacy, where Mr Palmer, through a related entity, was providing help to his clients to buy homes, to help them with upgrades, downsizes, homes for children, that sort of thing,” McMaster told the commission.
“And our earlier concerns that it was involved in something improper, what we feel is improper, fell away.”
Palmer could not be reached for comment.
The commission also heard that Dover continues to use two other planners with poor records — Andrew Smith, formerly of Westpac, and Chris Harris, formerly of ANZ’s Millennium 3.
Smith declined to comment to The Weekend Australian, but this week he told Fairfax Media he felt he had been made a “scapegoat” by the bank.
“I did not act dishonestly at any time and was under their instruction on how certain matters were to be done,” he said.
“Westpac are trying to blame me. My relationship with management at the end of my time there wasn’t the best.”
For his part, Harris said that when reading articles about — and the transcript of — the royal commission, “I feel as if I am reading about someone else”.
“I am at a loss of words and will be seeking advice from my lawyer,” he said.
He said he too was a “scapegoat”.
“I had very little knowledge that I was under such a dark cloud with M3 and as we get regular referrals, clients writing testimonials about the service we provide, it makes one seriously consider and question the information that was given,” he said.
“I don’t believe ANZ’s culture is good at any level, they never really took an interest in my business and when they did it cost me,” he said.
“I am deeply hurt and feel totally stressed by the information shared as I have always, and will always hold, my clients’ best interest in front of my own.”
By Ben Butler & Michael Roddan
28 April 2018