Banking royal commission: ANZ adviser failed audit, but still gave advice

ANZ subsidiary RI Advice allowed an adviser who failed its audits to continue giving advice to clients, the inquiry heard.

ANZ executive Darren Whereat in Melbourne yesterday. Picture: AAP

ANZ rushed to offer big incentives to recruit financial planners from a failing advice group before new legislation came into effect that would have stopped the bank receiving lucrative ongoing commissions, the financial services royal commission has heard.

It offered one planner, John Doyle, up to $150,000 to come across from Australian Financial Services — which was being shut down after the corporate regulator imposed new licence conditions on it — to ANZ subsidiary RI Advice, in March 2013.

Mr Doyle turned out to be a terrible adviser, earning the lowest possible fail mark on an internal audit even though he was allowed to choose the files reviewed, contrary to ANZ policy.

His results were so bad they skewed results across ANZ’s entire RI Advice business, the commission heard yesterday.

The commission heard that among misdeeds identified by ANZ, he tipped clients who were receiving defined benefit scheme pensions into self-managed super funds, potentially causing them financial harm, put 21 clients into a risky Instreet geared investment product that was not ­approved by RI Advice, and sold other clients a similarly ­unapproved geared Macquarie product.

And when the time came to remediate his customers, ANZ rated the effort a lower priority — in part because there was nothing to suggest Mr Doyle’s practice had a high public profile, an internal document tendered to the commission shows.

Through his company Carrington Financial, Mr Doyle had 700 clients with about $60 million invested in AFS’s in-house platform, Strategy, which had more than $1 billion under management that was administered by ANZ subsidiary Oasis.

ANZ was keen to retain control of as much of the money as possible — but unless advisers transferred to it before July 1, 2013, it would not be able to continue collecting trailing commissions on the portfolio.

This was because Future of Fin­ancial Advice legislation, introduced by the then Labor government, outlawed new trailing commissions from that date but “grandfathered” existing commissions, meaning they could still be collected.

The bank went ahead with the raid even after the Australian Securities & Investments Commission raised concerns about it given AFS’s licence had been restricted.

ANZ’s head of aligned licensees and advice standards, Darren Whereat, who was chief executive of RI Advice at the time, admitted the “transition payments” made to Mr Doyle would also have been conflicted remuneration and illegal under FoFA if they had been made after July 1, 2013.

Company policy required Mr Doyle to sit an exam before he became an authorised representative of RI Advice, but evidence before the commission shows he was not given the test until July 2013, three months after he started with the company.

He failed.

Mr Whereat told the commission he had seen no evidence to suggest RI Advice increased monitoring or supervision of Mr Doyle after he failed the exam.

Mr Doyle was not audited until February 2015, even though a complaint was made against him in August 2013, and company policy was that planners were to be audited every 12 months.

“I don’t think it’s acceptable for someone not to have an audit for a two-year period,” Mr Whereat told the commission.

“I believe a flag like this is certainly an early indicator that you need to have a look at the files,” he added.

At his audit, Mr Doyle was allowed to choose the five files reviewed after failing to provide the files required by the auditor.

Even so, he received a five on the audit, the worst mark available, and failed the audit.

He failed a second audit and in July 2015 RI Advice gave him six months’ notice that his agreement as an authorised representative was to be terminated.

Mr Whereat agreed with Rowena Orr QC, counsel assisting the commission, that RI Advice could have suspended Mr Doyle because of the problems with his work.

He said he was “unsure” why it did not.

“Yes, John was able to give vetted advice to his clients (during the six-month period),” he said.

However, another audit showed Mr Doyle had not been submitting his advice for vetting.

In August, Mr Doyle was ­finally suspended.

“You did so on the basis of breaches of the Corporations Act that you’ve listed in the letter that were evidence in some of the 16 files that had now been reviewed across the three audits,” Ms Orr said.

Nonetheless, he was still allowed to “give advice to his existing clients”, Mr Whereat said.

This was contrary to RI Advice policy. “I accept that that is a mistake,” Mr Whereat said.

“It was unacceptable.”

RI Advice reported Mr Doyle to ASIC but Mr Whereat admitted there was no evidence of a report to the professional bodies of which he was a member, the Financial Planning Association and the Association of Financial Advisers.

A remediation program for Mr Doyle’s clients began after he sold Carrington to a new owner in July 2016.

In April last year, it was still in the “identification and scoping phase of the project”, which was occurring under ASIC supervision, the commission heard.

RI Advice did not begin preparing loss assessments until September last year, the commission heard. It set aside $766,000 to compensate 222 clients.

Only 29 clients have been compensated, paid $415,000, the commission heard.

The two-year delay was not “acceptable for our clients, not acceptable for community standards, not acceptable to our own standards”, Mr Whereat said.

He acknowledged repeated failures by RI Advice and said he took responsibility for the entire disaster.

“We just took to long to act and then when we did act … there are instances where in hindsight and with the benefit of that we should have made some different decisions,” he said.