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BFCSA: Narev facing heat over risky investments: Rattlesnake in the CBA Cupboards

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CBA boss Ian Narev faces heat over risky investments

Former Commonwealth Bank of Australia chief executive David Murray admitted last month to leaving a “rattlesnake in the cupboard” for his successor, Ralph Norris: scandals in the bank’s financial planning divisions.  But it has been Ian Narev, who took over from Norris in December 2011, who has faced opprobrium from Parliament, the corporate regulator and the bank’s board. They have asked why Australia’s biggest bank was so slow to react when hundreds of risk-averse clients lost millions after financial planners chasing bonuses invested in risky products, and whether the bank’s culture and systems are sufficient to prevent the debacle from happening again.

Narev and his head of wealth, Annabel Spring, have framed their answers through three prisms: establishing remediation processes to compensate aggrieved clients; rolling out new technology systems to monitor advisers; and changing the culture in the wealth business, including new remuneration structures.  To understand CBA’s financial planning malaise, history is instructive. When Norris took control of the bank in 2005, its wealth business was humming along. Five years earlier, CBA had purchased Colonial First State for $9.1 billion, bolstering its advice capabilities amid a mad scramble by the big banks to capture superannuation flows. In the years leading into the ­global financial crisis, the sales and performance-based culture saw funds under management swell.  Commonwealth Financial Planning “constantly reminded its staff who was ‘the best’ by posing a league-style ladder around the office trumpeting the rainmaking acumen of its top performers at the branch level and across the division,” wrote Adele Ferguson in The ­Sydney Morning Herald last year when she exposed the scandal.  The planner at the centre of events – Don Nguyen, who allegedly forged ­signatures, overcharged fees and created unauthorised accounts without client permission – told an investigation by Fairfax Media and the ABC’s Four Corners last month he wasn’t pulled up by the bank’s compliance department.


CBA’s senior management have been forced to enter a period of deep introspection. Bank chairman David Turner told the annual meeting in November that inform­ation about the breaches was “too slow in coming up through the organisation”...........Way back in 2007, the Australian Securities and Investments Commission informed CBA after an audit of Commonwealth Financial Planning and Financial Wisdom about dozens of incidents of fraud and dishonest conduct, deliberate or reckless failure to disclose fees, and problems with documentation. “We found out about it far too late,” Turner said at the AGM.  “We had the wrong people giving the advice and the business was structured wrongly, and remunerated wrongly, and the culture was wrong.”   In his recent speech, Murray said he has “often thought about why [the bad advice] wasn’t noticed earlier. We were driving enormous product sales in one region in the bank . . . as a consequence of what was happening and nobody asked the question why the volume of business in that location was running so strongly.” He also fingered remun­eration structures as a key cause.  CBA no longer pays commissions to its planners: the federal government’s Future of Financial Advice (FoFA) reforms have banned that practice??? more

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Guest Friday, 04 December 2020