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Thursday 23 April 2015

15-083MR Update on licence conditions on two Commonwealth Bank financial planning businesses: ASIC releases initial report into advice compensation program

ASIC today released KordaMentha Forensic’s first report on past activities by Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom Limited (FWL) to compensate clients, and to identify high-risk advisers and affected customers.

The report confirms the inconsistency and deficiencies of an original $52 million compensation scheme. These shortcomings, which disadvantaged some customers, led to ASIC imposing new Australian financial services (AFS) licence conditions on CFPL and FWL in 2014 (refer: 14-192MR and 14-104MR).

The failings are being rectified through KordaMentha Forensic’s review. Following the release of today’s report, the first of three to be delivered to ASIC, Commonwealth Bank (CBA) will contact approximately 2740 customers to offer them up to $5000 to have their advice assessment reviewed and to seek independent advice.

KordaMentha Forensic’s second report will assess whether CFPL and FWL had a reasonable basis for identifying the clients and advisers for the original compensation scheme. If KordaMentha Forensic finds that other clients or advisers should have been captured, CFPL and FWL will be required to rectify this.

KordaMentha Forensic’s third report will provide an assessment of this work and CFPL and FWL’s compliance with the licence condition program.

Purpose and key findings of Comparison Report

KordaMentha Forensic’s Comparison Report reviews and compares CFPL and FWL’s processes for reviewing and communicating with two groups of clients:

  • Clients who received advice from banned former CFPL advisers Don Nguyen and Anthony Awkar, and who were remediated under a compensation program known as Project Hartnett; and
  • Certain clients of further former CFPL and FWL advisers, many of whom were offered compensation as a result of adviser misconduct, in a separate compensation program.

KordaMentha Forensic found three inconsistencies between the compensation programs which CFPL and FWL are required to rectify for affected clients:

  1. Initial letter: In Project Hartnett, clients received a letter indicating that the advice they received was being investigated and that CFPL would contact them with the outcome. However, most clients assessed in the Compensation Program did not receive this letter. For those clients who did receive a letter, it was often inconsistent with the Project Hartnett letters (for example, some letters did not include the adviser's name or alert the client that the licensee was investigating concerns it had with the adviser) (Paragraphs 26-32)
  2.  Offer of up to $5000 for independent advice: In Project Hartnett, clients who received advice which was implemented were generally (but not in all cases) sent a letter which included an offer of up to $5000 for independent professional advice to help them assess the validity of the licensee’s review and any compensation offer. In the Compensation Program, the offer was discretionary – and no clients were given this offer (Paragraphs 33-36)
  3. Close-out letter: In Project Hartnett, clients who received the initial letter indicating there was an investigation being conducted into the advice provided to them, but who were determined not to be entitled to compensation, received a letter stating this result of the file review. However, in the Compensation Program, while some clients received a letter offering compensation or advising they were not entitled to compensation, most clients reviewed received no such communication. As a result they were not given an opportunity to participate in the review and decision making processes as to whether they were entitled to compensation (Paragraphs 37-40)

Following this report, the licensees will contact approximately 2740 clients offering them up to $5000 to have their financial advice independently reviewed and the other options available under the licence conditions. The licensees will also write to a further 1590 clients informing them that a review of their file found no evidence that they had received advice, but if that is not correct, the clients will be offered $5000 assistance and all the options available under the licence conditions.

KordaMentha Forensic’s work in preparation for this report also revealed that 86 clients under Project Hartnett did not receive the $5000 offer, and some clients did not receive an ‘Initial Letter’ explaining that their advice was being reviewed. CBA has given a commitment to ASIC that these clients will now be treated consistently with other clients under the licence conditions, including the $5000 offer (Paragraphs 34, and 136-139)

Background

ASIC appointed KordaMentha Forensic in November 2014 to examine CFPL and FWL’s compliance with new AFS licence conditions (refer: 14-302MR).

The licence conditions and the expected work of the compliance expert were published in August 2014 (refer: 14-192MR).

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Last updated: 23/03/2016 03:09