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Banking Royal Commission: Hurricane Hayne's Trail Of Devastation


AMP chief executive Craig Meller has quit; AMP chairman Catherine Brenner is fighting for her survival; Terry McMaster, owner of one of the country's largest financial advisory networks, Dover Financial Advisers, collapsed in the witness box.

These are just some of the casualties of the past fortnight as the Hayne royal commission cut a swath through the country's 25,000-strong financial planning industry, which is meant to play a major role in helping consumers manage their $2.6 trillion in superannuation savings.

The financial planning industry, of course, has long been plagued by scandal. But it has taken the royal commission to reveal the deep-seated flaws in many of the industry's long-established and widely accepted practices.

What's been impressive has been the depth of understanding that Commissioner Kenneth Hayne and his chief lieutenants - counsels assisting Rowena Orr, QC, Michael Hodge, QC, and Mark Costello - have acquired in such a short period of time into the industry's inner workings.


It's taken the banking royal commission to reveal the deep-seated flaws in many of the financial planning industry's long-established and widely accepted practices.David Rowe

At the same time, they maintained a clear-eyed view, both of the legal requirements, and the basic ethical standards, that should apply to bad behaviour that has long been tolerated as normal by some of our largest, and most highly regarded, financial institutions.

Slow realisation at AMP

AMP's senior management clearly had no inkling of the looming catastrophe when the firm's head of advice, Anthony "Jack" Regan testified about the financial giant's practice of charging fees for no service.

Indeed, it appears that was only after the implacable grilling by Hodge - and the subsequent public outcry - that it dawned on AMP that misleading the corporate regulator on at least 20 occasions was a serious matter.

Similarly, AMP's Brenner clearly took the view - and appears to be still clinging to the belief - that her instructions to alter a supposedly "independent report" prepared for the Australian Securities and Investments Commission was not a matter of grave impropriety.


The depth of understanding that Commissioner Kenneth Hayne and his chief lieutenants have acquired into the financial services industry in a short space of time has been very impressive.Eddie Jim

Orr has invited Commissioner Hayne to find that AMP breached the Corporations Act multiple times by charging fees for no service, lying about it and then presenting the regulator with a report it edited as independent. But AMP is far from the only corporate miscreant.

The commission also heard how some financial planners in the Commonwealth Bank subsidiary, Count Financial, continued to charge customers fees for advice even after their deaths. One planner charged a dead customer almost $1000 a year for advice for more than a decade.

Rogue planners

Then there was the ANZ financial planner, referred to in evidence as "Mr A", who persuaded five clients to invest $600,000 in a marina property through their SMSFs in late 2011.


The Hayne royal commission is cutting a swath through the country's 25,000-strong financial planning industry David Rowe "Mr A" subsequently bought the marina property in the name of a company of which he was the sole director, rather than using the unit trust structure that had been agreed upon. The investment proved to be a disaster.

ANZ's head of wealth solutions and partnerships, Kieran Forde, agreed the bank still did not know how many customers had been affected by Mr A's conduct, although it had identified "at least eight".

National Australia Bank discovered a rogue financial planner who forged the initials of customers on a superannuation document. This triggered a wider investigation, which saw about 350 NAB staff confess they had been guilty of the same offence, potentially invalidating thousands of superannuation benefit nominations.

When Orr asked what the widespread and "common practice" of false witnessing of documents by NAB staff said about the ethical standards at the bank, Andrew Hagger, a senior NAB executive, blamed it on "a failure of discipline".


Orr has invited Commissioner Hayne to find that AMP breached the Corporations Act multiple times. Eddie Jim

Orr countered the behaviour was far worse than that, describing it as a "failure of culture" and a "failure of education".

Compensation complaints

The commission also heard of a note written by NAB's independent customer advocate, Professor Dimity Kingsford Smith, late last year that complained that "at best, customer remediation is less than 10 per cent complete and this is largely for want of financial support".

Unfortunately, there is no reason to believe the other big banks - or AMP - are any further advanced than the NAB when it comes to compensating consumers who received woeful financial advice.


Still, at least there is an acknowledgement by the big banks and AMP they have a responsibility to stand behind the advice given by their authorised representatives. Matt Davidson

Still, at least there is an acknowledgement by the big banks and AMP they have a responsibility to stand behind the advice given by their authorised representatives.

As NAB's Hagger testified, "customers take, typically, a lot of comfort out of the fact that they're dealing with a big institution. We have seen that where, as a bank, we have got it wrong, we have compensated clients."

This set the stage for Terry McMaster, a highly intelligent lawyer, accountant and financial planner who owns Dover Financial Advisers. Dover ranks in the market's top 10 in terms of number of authorised representatives.

'Orwellian' protection

In a frequently tense exchange, Costello drew attention to Dover's client protection policy which stated it was "designed to ensure every Dover client gets the best possible advice and the maximum protection available under the law".

The policy went on to state that "under the Corporations Act, Dover is not responsible for anything done by your adviser that is not within the authority provided by Dover in these circumstances".

According to the policy, advisers' authority did not include actions such as failing to adequately research a recommended financial product, failing to consider clients' circumstances when recommending a financial product or service, or failing to advise clients of negative consequences of recommended actions.

Costello put it to McMaster that it was "Orwellian" to describe the document as a client protection policy, because it was "nothing more than an elaborate attempt to exclude Dover's liability for the acts of its authorised representatives".

Dover's attitude, he said, was to seek the maximum protection it possibly could. "Yes", McMaster agreed.

Wasn't this consistent with a culture within Dover that client complaints were to be fought at all costs, Costello pressed.

"I don't think that's correct", McMaster said. It was to be McMaster's last comment before he collapsed in the witness box.

By Karen Maley

Financial Review

27 April 2018

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