The untouchables: How the dodgy financial planners kept their jobs

Charging dead people fees, impersonating clients, falsifying signatures. It’s all apparently in a day’s work for unscrupulous members of the $4.6 billion financial planning industry.

For the best part of the past week, the Hayne royal commission explored the misdeeds of advisers employed by the big banks and AMP. The testimony was disturbing, and portrayed the financial services giants as cumbersome organisations unable to keep tabs on an army of advisers.

Where misbehaviour was discovered, they were slow to act and even slower to sack people. And even if an adviser was dismissed, there was always the prospect they’d be picked up by another group such as Dover Financial, which employed a number of planners who had been cited for misconduct in their last job, the commission heard.

On Tuesday counsel assisting the commission turned to Sam Henderson’s Henderson Maxwell, which according to its website is “proudly privately owned” and not “in cahoots with the big banks”.

Even so, Mr Henderson’s time in the witness box was dramatic, eclipsed perhaps only by the collapse of Dover Financial’s Terry McMaster.

The commission was played a telephone recording of one of Mr Henderson’s employees impersonating a client, Donna McKenna. Similar calls occurred on half a dozen or so occasions, the commission heard, and yet the unnamed staff member was not disciplined, let alone sacked. The purpose for playing the recording was not only to demonstrate impersonation. It also revealed that Mr Henderson’s office was told on at least two occasions that moving Ms McKenna’s superannuation out of her existing account would immediately wipe $500,000 from the value of her benefits.

Mr Henderson claimed the information was never conveyed to him.

Ms McKenna, a Fair Work commissioner, complained to Henderson Maxwell and was offered a refund. She also took her complaint to the Financial Planning Association, of which Mr Henderson was a member at the time.

According to senior counsel assisting Rowena Orr, QC, Mr Henderson sought to influence the FPA complaints process and very nearly struck a deal to keep his name out of the public arena despite admitting to breaches of the FPA’s code of conduct and agreeing to sanctions.

Mr Henderson had built a high media profile, including a television show on Sky News and contributing general superannuation advice in AFR Weekend (both arrangements have been cancelled). When the FPA’s conduct review commission suggested a further sanction, which was to refrain from media appearances for a year, Mr Henderson resiled from his earlier admissions of wrongdoing, the commission heard. More than a year on from Ms McKenna’s complaint, no resolution has been reached.

The storm over conflicted financial advice has been brewing for some time.

In 2009, a parliamentary committee headed by former Labor MP Bernie Ripoll was given the task of examining the root causes of the collapse of financial services firms including Storm Financial and Opes. The committee estimated that 85 per cent of advisers were associated with a product manufacturer (that is, a bank or other financial services company).

A briefing paper prepared by the royal commission says 44 per cent of advisers operate under a licence controlled by the largest 10 financial institutions.

Charging dead people fees, impersonating clients, falsifying signatures. It's all apparently in a day's work for ...
Charging dead people fees, impersonating clients, falsifying signatures. It’s all apparently in a day’s work for unscrupulous members of the $4.6 billion financial planning industry. David Rowe

The Ripoll inquiry gave rise to the Future of Financial Advice reforms, which banned certain types of commissions and introduced a legal requirement that advisers act in the best interests of clients (rather than maximising their own pay packets).

Yet problems persisted and late last year the Turnbull government bowed to pressure and called the royal commission.

Mr Henderson is not the only person whose conduct was probed by the commission; nor is his behaviour necessarily the most egregious. Moreover, he has openly admitted to making mistakes and has apologised for them.

But what Mr Henderson’s case demonstrates is that the problem is not confined to advisers employed by, or aligned with, banks.

Donna McKenna is still waiting for her complaint against Sam Henderson to be resolved.
Donna McKenna is still waiting for her complaint against Sam Henderson to be resolved. Stefan Postles

And if, as the commission heard, the chief disciplinary “stick” available for punishing poor behaviour is action by employers, what happens when somebody does not have a boss and cannot be threatened with dismissal?

The commission heard that in other segments of the workforce, industry bodies play a significant disciplinary role.

There are 25,000-odd financial advisers operating in Australia, many of whom belong to one of two peak bodies, the Financial Planning Association of Australia and the Association of Financial Advisers.

The FPA has expelled six members since January 1, 2016.

Either the overwhelming majority of members are impeccably behaved or somebody is asleep at the wheel.

Sam Henderson, CEO and senior financial adviser at Henderson Maxwell, arrives at the Federal Court in Melbourne.
Sam Henderson, CEO and senior financial adviser at Henderson Maxwell, arrives at the Federal Court in Melbourne. Stefan Postles

The AFA appears to be even more timid when it comes to expulsions, with the commission hearing it declined to expel one member even though the Australian Securities and Investments Commission (ASIC) had banned him from providing financial advice.

So if the industry bodies can’t – or won’t – act as decisive disciplinarians, surely the corporate regulator has been pulling rogue advisers into line? Not necessarily, the commission heard. ASIC has banned 229 financial advisers since 2008, including 10 so far this year. But it has brought no civil penalty proceedings against financial advisers in the past five years.

On Friday, Ms Orr asked ASIC financial advisers team senior executive leader Louise Macauley whether the regulator had “used its banning powers enough to deal with misconduct in the financial advice industry”.

Ms Macauley responded: “No, I don’t think we have. I think we have used them to the best of our ability given our resources.”

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