CBA harvested customers for in-house advice

11-Apr-2014

By Kate Kachor

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The whistleblower at the centre of Commonwealth Bank of Australia’s (CBA) financial advice saga has claimed the bank harvested client databases and used banking staff to funnel customers to its in-house financial advice businesses.

Former CBA adviser Jeff Morris made the claim yesterday in front of a Senate inquiry into the performance of the corporate regulator.

Morris was among a number of whistleblowers, who went under the name Ferrets, who alerted ASIC to concerns regarding a number of now former advisers, including Don Nguyen.

“You could say the journey here today began with one dodgy financial planner by the name of Don Nguyen, but that would be wrong,” Morris told the hearing in Canberra.

“Don Nguyen was not a rogue planner, not an aberration as that term implies, he was merely a symptom of a system that is fundamentally broken.

“A system that is destined to get far worse in future if current trends are allowed to play out.”

He said the financial advice industry in Australia grew out of door-to-door insurance salesmen “peddling polices in return for hefty commissions”.

“It [the industry] has never cast off that legacy,” he said.

“Despite FOFA (Future of Financial Advice) banning some forms of conflicted remuneration, direct commissions and the like, under FOFA the ghost of conflicted remuneration through bonus schemes based on product sales has not been laid to rest.”

He said the financial advice industry was “a quagmire of conflicts of interests”, of which adviser remuneration was just one.

“Possibly an even greater problem is the trend to vertical integration - ownership of advice businesses by product manufacturers,” he said.

“This is a clear and deliberate strategy to use people posing as independent and professional advisers as a sales channel to push in-house product.”

He queried where the client’s best interest was in the process.

“In the case of the banks, you can add the conflict of interest created by the non-transparent use of extensive databases to identify prospects and counter staff under enormous pressure to [provide] a certain number of referrals each week to harvest customers for the in-house financial planning businesses,” he said.

“Who are the people who will advocate for the extension of this conflicted vertically integrated model? Commonwealth Financial Planning for one.

“The same people who, my submission shows, when things went wrong with Don Nguyen and other so-called rogue planners, sort out every turn, by every means, to cover up what occurred to destroy or suppress the evidence in the files, and to defraud the victims of the compensation they were entitled to.”

He questioned why such activities were allowed to happen given the financial services sector was subject to regulation.

“The answer can only be that the regulator is ineffective,” he said.

“Don Nguyen and Commonwealth Financial Planning were not outlining events but merely symptoms of the broken system overseen by ASIC.”

ASIC had never wanted to grapple with the real problems in the industry, “to eradicate the conflicts” of interest, to put the “spivs” out of business and to protect consumers, he said.

“ASIC failures in relation to Commonwealth Financial Planning are staggering,” he said.

“Failure to act on the information from the whistleblowers for 17 months, to take on the big institution over the cover-up that occurred, or even to investigate the file tampering allegations at any time to question the years that Commonwealth Financial Planning spent grinding the victims down before a semblance of compensation was finally paid.”

There was a fundamental problem with ASIC that merited further, detailed investigation, he said.

ASIC banned Nguyen in March 2011 after an investigation revealed he failed to comply with financial services laws.

As part of its investigations into Nguyen and Commonwealth Financial Planning, ASIC had obtained the formal removal of eight advisers and had secured more than $23 million in compensation to date for 202 investors.

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