ASIC wields the big stick against financial advisers

ASIC is adoptingroyal commissioner Ken Hayne’s aggressive “why not litigate?” approach

Spurred by the Hayne royal commission, ASIC is starting to wield a big stick against the nation’s rogue financial advisers.

The lesson from a couple of recent Federal Court cases is that individual accountability is now in vogue; it’s no longer enough to target the licensee alone.

Sure, a handful of advisers have copped a life ban in extreme cases, but the proceeds from their aberrant behaviour were left untouched.

It wasn’t for lack of power. The Future of Financial Advice reforms in 2013 gave ASIC the wherewithal to impose financial penalties.

The real problem was excessive caution — taking action against the individual could complicate any criminal case under consideration.

ASIC’s adoption of royal commissioner Ken Hayne’s aggressive “why not litigate?” approach has changed all that, as the cases involving John Doyle and Terry McMaster attest.

McMaster, who memorably fainted under cross-examination at the 2018 royal commission, self-selected as a test case.

No one is more deserving of having the book thrown at them.

Last Friday in the Federal Court, judge Michael O’Bryan fined McMaster $240,000 and penalised his now-defunct Dover Financial $1.2m for publishing misleading and deceptive statements in a so-called “client protection policy”.

The court had already found in November 2019 that Dover provided its client protection policy to 19,402 clients between September 2015 and March 2018, and that the title was “highly misleading and an exercise in Orwellian doublespeak”.

“The document did not protect clients,” Justice O’Bryan said at the time. “To the contrary, it purported to strip clients of the rights and consumer protections they enjoyed under the law.”

McMaster had only made matters worse by the time the judge began considering a penalty.

As Justice O’Bryan said on Friday, the Dover principal only had a “limited appreciation of the seriousness of the contravening conduct and little if any contrition for the wrongdoing”.

What’s more, a sworn statement of his financial position was “partial and misleading”, with McMaster found to be relying on income generated by family trusts which he did not control.

In a parallel Federal Court case involving Doyle, ASIC alleged that RI Advice, an ANZ financial advice business until its sale to IOOF, failed to take reasonable steps to ensure that he acted in clients’ best interests, or put their interests ahead of his own.

It was also alleged he gave inappropriate “cookie cutter” advice to retail clients to invest in complex structured financial products without taking into account their financial goals or risk tolerance.

The advice was allegedly conflicted because Doyle was receiving upfront and ongoing commissions in relation to ­investments in the structured products.

Doyle has abandoned his defence, as ASIC prepares to petition the court on appropriate penalties.

Individual accountability and deterrence are the big themes in both Federal Court cases.

As with McMaster, the regulator is unlikely to go soft on Doyle.

 NAB’s upbeat view

Ross McEwan has been doing the rounds and the news on the domestic economy is unmistakably good.

Almost every time he speaks publicly, the National Australia Bank boss looks a little sheepish as he brings forward his forecast for the economy’s return to its pre-COVID level. Last November, McEwan pulled it forward a year from late 2022 to late 2021, and did so again to the middle of this year at the bank’s trading update for the December quarter in ­February.

On Tuesday, he was at it again, with the economy now “likely” to lift off from its December 2019 pre-pandemic level in the current March quarter, despite the imminent withdrawal of critical support measures like JobKeeper.

The extent to which this recovery has confounded the pundits cannot be overstated.

Only a year ago, 900,000 jobs were shredded in an apocalyptic two months, eclipsing the previous record of 70,000 jobs lost in a single month during the 2008 financial crisis.

NAB’s forecasts in early 2020 were horrendous.

Unemployment was predicted to spike to 11.7 per cent in June, triggering a tsunami of bad debts before progressively reducing in 2021.

With the bank’s common equity tier one ratio hovering at a skinny 10.4 per cent, McEwan and his board blinked at the April 27 half-year profit result, scrambling to raise $4.25bn at $14.15 a share compared to Tuesday’s close of $26.65.

While it’s easy to criticise ­McEwan now, particularly with the luxury of 20:20 hindsight, he mostly earned praise at the time for prioritising the bank’s stability.

With the exception of Melbourne’s second lockdown, everything since then has proceeded in lock-step with the most wildly optimistic of scenarios.

As one insider put it: “Not only have we not had the big wave (of bad debts); we haven’t even had a normal wave.”

Like some of its peers, NAB now has surplus capital and is wondering what to do with it.

Its CET1 ratio stands at 11.7 per cent, with the economy building a head of steam and proceeds from the $1.44bn sale of the wealth ­business MLC to IOOF still to come.

Asked on Tuesday when the economy would return to its pre-COVID level, McEwan said: “It’s likely we’ll be back there at the end of March or soon after.

“We didn’t anticipate that at all 12 months ago.”

That might be so, but we’re all better for it.