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BFCSA: CBA and ASIC War of Words over financial advice victims: Our chaotic Banking Industry

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War of words over CBA financial advice victims

June 17, 2014


Adele Ferguson  SMH



Commonwealth Bank and the Australian Securities and Investments Commission are having a war of words in relation to the compensation process offered to victims of the bank's financial planning scandal.

While the spat continues, it raises more questions than it answers about the role of ASIC and CBA in dealing with clients who saw their life savings decimated by more than a few bad financial planning apples.

A confidential report from the bank to a Senate committee says ASIC was well aware that the bank's compensation process was not ''consistently applied'' to affected customers of advisers where there were concerns about the quality of their advice.

It says ASIC was fully informed about changes to its compensation scheme.

These changes included not offering all affected victims the same compensation process that it offered to those of disgraced financial planners Don Nguyen and Anthony Awkar.

Nguyen and Awkar's victims were sent letters that the bank had ''concerns'' with their advice and also offered $5000 if they wanted an independent review of any offers of compensation. While these letters weren't perfect in that they grossly played down the significance of what had gone on, they at least made an attempt to give customers the heads up that something might be wrong with the advice they had received.

It is astounding that ASIC would agree to allow CBA to dilute its compensation process, particularly given the extent of the financial planning scandal that destroyed the life savings of hundreds, possibly thousands, of victims.

Even more surprising is how limited the enforceable undertaking was in relation to the Commonwealth Financial Planning division. In the letter it says it looked at financial planners who had a breach notice submitted by this division to ASIC from June 1, 2008 to the date of the enforceable undertaking on October 25, 2011. ASIC agreed to this.

This is a very narrow time frame, given the aggressive sales culture at CBA dated back at least a decade. Indeed, ASIC wrote to the bank in 2008 saying it found that even the planners rated as having ''negligible risk'' in a surveillance it had conducted in previous years had some serious issues.

It found the bank rated 38 planners ''critical risk'', which can include fraud.

ASIC said: ''We are already on the public record re concerns with aspects of the compensation process and the steps that will be required to fix that process.''

Last month, ASIC imposed new licence conditions on the bank to equalise the compensation process.

''This inconsistency disadvantaged some customers,'' ASIC said in a statement. ''Now, more than 4000 customers will be given an opportunity, if they wish, to have the question of compensation reopened.''

The bank said in its letter to the Senate: ''CBA is unaware of any other financial services provider that provides an offer of funded independent advice in conjunction with making compensation offers to clients, either as part of normal operations or under ASIC requirement.''

If that's the case, ASIC should revisit this as a start to cleaning up the financial planning industry.

It explains why class action law firms, whistleblower Jeff Morris and the Senate are taking steps to help management at CBA to right the wrongs of the past.

A firm associated with consumer advocate Erin Brockovich has confirmed it will pursue a $200 million class action against Commonwealth Bank.

Shine Lawyers told industry magazine IFA it had received ''considerable responses'' from customers of a dealer group associated with CBA who suffered a financial loss at the hands of its star financial planner Rollo Sherriff and a few others.

A joint Fairfax Media and Four Corners investigation revealed in May that CBA had paid 98 customers of Sherriff $7.3 million in compensation.

Given Sherriff had more than 1000 customers and $53 million in funds under management, this equates to a loss of less than 15 per cent for Sherriff's customers.

During the Fairfax-Four Corners investigation, some clients of Sherriff said they received compensation only after confronting the bank with their own notes or after approaching the Financial Ombudsman. All were unaware that they were only one of almost a hundred others compensated.

On Friday, the bank confirmed it had paid $2.4 million in compensation to customers of another former Financial Wisdom adviser.

A search of the ASIC database on banned advisers reveals that over the past decade several authorised representatives from Financial Wisdom have been banned or jailed.

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