Financial planning regulator puts members before their clients

26 April 2018

Financial planning regulator puts members before their clients

The Financial Planning Association (FPA), which regulates financial planners, appears to have put the interests of their members above the interests of their members’ clients, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry heard on Thursday.

This follows testimony from Fair Work Commissioner Donna McKenna on Tuesday, during which Ms McKenna told the Royal Commission that financial advisors Henderson Maxwell gave advice that would have lost her $500,000 in a deferred retirement benefit payment.

Chief executive Sam Henderson — a media personality who has a programme on Sky News Business — testified after Ms McKenna. Recordings of a Henderson Maxwell employee impersonating Ms McKenna in several phone calls to her superannuation fund were played to the Royal Commission.

Under questioning from senior counsel Rowena Orr QC, Mr Henderson admitted that the employee was impersonating Ms McKenna, but denied that he had knowledge of this, describing the impersonation as “inexcusable”. However, the employee was not dismissed.

Ms McKenna made a complaint to the FPA about the quality of the advice in March 2017, but it has not been resolved.

The Royal Commission heard that Mr Henderson responded to Ms McKenna’s complaint in a letter to the FPA that described it as a “barrage of aggressive and presumptive accusations”.

Last month Mr Henderson proposed to the FPA that he would admit the financial advice given to Ms McKenna was deficient and agree to implement changes at the firm, so long as his name was not published in relation to the complaint. The FPA proposed further that Mr Henderson would not make media appearances for at least a year. This was unacceptable to Mr Henderson, and the complaint remains unresolved.

When asked by Ms Orr on Thursday why the complaint has taken so long to resolve, head of the FPA Dante De Gori said that discussions had been ongoing between the FPA and Mr Henderson but they had not reached agreement on the terms of disciplinary action.

Ms Orr asked why agreement is needed, to which Mr De Gori said that the FPA had opted for the negotiated approach rather than to impose unilateral sanctions.

It then emerged that Mr Henderson had made frequent calls and sent several emails to the investigator Mark Murphy, as well as other FPA officials. Mr De Gori admitted that he had spoken to Mr Murphy, and asked him to keep Mr Henderson informed about the investigation.

Mr De Gori claimed that the FPA promises to keep its members informed during investigations. Ms Orr suggested that “the FPA is more concerned with [keeping its promises to its members] than with administering a rigorous disciplinary system”, which Mr De Gori denied.

Mr De Gori denied that his request to keep Mr Henderson informed amounted to interfering with the investigation.

Ms Orr then turned to why the FPA elected to use its summary disposal process to handle Ms McKenna’s complaint.

In his investigation, Mr Murphy did not recommend the summary disposal process, which necessitates agreement between the FPA and the member against whom the complaint has been made before disciplinary measures are imposed.

The most severe penalty the FPA can impose is expulsion from the association, but Mr De Gori said he knows of only one employer that requires accreditation, meaning members who have been expelled can continue to practice as financial advisors.

However, the FPA has kept the identity of members who have breached its standards or policies confidential in at least eight occasions. This prompted Ms Orr to ask whether “it is possible to hold members accountable for their misconduct if their identity is kept confidential”, to which Mr De Gori said that the FPA has other measures to correct and sanction misconduct, including educational measures, which can only ensure cooperation by not publishing names.

But Ms Orr countered, putting it to Mr De Gori that the FPA has an obligation to protect its customers and that, by Mr De Gori’s own admissions, the only way it can do that is by publishing their names.

The next witness before the Royal Commission was Philip Kewin, chief executive of the Association of Financial Advisers (AFA).

Ms Orr asked Mr Kewin whether competing professional bodies can achieve the same professional standards:

ROWENA ORR QC: Can the AFA operate effectively as a co-regulator of the financial advice industry if it’s in competition with other industry bodies for membership?

PHILIP KEWIN: I believe so.

ORR: How?

KEWIN: I’m not sure how not.

ORR: How can an organisation that is seeking to make itself attractive to potential members in comparison with other industry bodies also, at the same time as seeking to make itself attractive, regulate the conduct of those members? Isn’t there an inherent conflict in those two propositions?

KEWIN: I don’t think so.

However, one financial advisor was expelled from the FPA and banned from the industry by the Australian Securities and Investments Commission (ASIC) for alleged misconduct, but the AFA did not expel the advisor. Mr Kewin stated that the advisor has a pending appeal against the ASIC decision in response to Ms Orr asking “If an ASIC banning order isn’t enough, what does it take to get expelled from the AFA?”

The AFA claims it has only had two complaints that required disciplinary hearings over the past two years.