‘We just took to long to act’

An ANZ exec says it took too long to compensate customers dudded by a planner poached before new laws came into effect.

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 license 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.

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 other clients into 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 $60m invested in AFS’s in-house platform, Strategy, which had more than $1bn 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.

June 26, 2014

Royal Commission timeline

The Senate economics committee calls for a royal commission following a lengthy inquiry into ASIC’s performance that focused on financial planning scandals at the CBA.

April 21, 2016

Royal Commission timeline

In an attempt to stave off continuing calls for a royal commission, the Australian Bankers Association announces former senior public servant Ian McPhee will oversee an overhaul of industry standards and practices.

November 30, 2017

Royal Commission timeline

After years of denying a royal commission is needed, the banks write to Prime Minister Malcolm Turnbull asking for one. He obliges.

February 12, 2018

Royal Commission timeline

Commissioner Kenneth Hayne formally opens the inquiry and sets the tone by laying into the big banks for failing to provide all the information he wanted in time.

March 13, 2018

Royal Commission timeline

The commission’s first full public hearings hear about consumer credit issues including a home loan fraud ring among NAB bankers in Western Sydney and out-of-control mortgage brokers at CBA subsidiary Aussie Home Loans.

April 16, 2018

Royal Commission timeline

Second round of hearings kicks off with a focus on one of the industry’s most scandal-prone sectors, financial planning.

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 and Investments Commission raised concerns about it given AFS’s license 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.

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 acknowledge 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.