In this case study, the committee examined misconduct that occurred between 2006 and 2010 by financial advisers and other staff at Commonwealth Financial Planning Limited (CFPL), part of the Commonwealth Bank of Australia Group (CBA). Advisers deliberately neglected their duties and placed their personal interests far above the interests of their clients. The assets of clients with conservative risk positions, such as retirees, were allocated into high-risk products without their knowledge to the financial benefit of the adviser, who received significant bonuses and recognition within CFPL as a ‘high performer’. There was forgery and dishonest concealment of material facts. Clients lost substantial amounts of their savings when the global financial crisis hit; thecrisis was also used to explain away the poor performance of portfolios. Meanwhile, it is alleged that within CFPL there was a
management conspiracy that, perversely, resulted in one of the most serious offenders, Mr Don Nguyen, being promoted.
Initially the committee found:
the conduct of a number of rogue advisers working in CFPL was unethical, dishonest, well below professional standards and a grievous breach of their duties—in particular the advisers targeted vulnerable, trusting people;
both ASIC and the CBA seemed to place reports of fraud in the ‘too hard basket’, ensuring the malfeasance escaped scrutiny and hence no one was held to account;
the CBA’s compliance regime failed, which not only allowed unscrupulous advisers to continue operating but also saw the promotion of one adviser, thus exposing unsuspecting clients to further losses;
there was an inordinate delay in CFPL recognising that advisers were providing bad advice or acting improperly and in CFPL acting on that knowledge and informing clients and ASIC;
ASIC was too slow in realising the seriousness of the problems in CFPL, instead allowing itself to be lulled into complacency and placing too much trust in an institution that sought to gloss over its problems;
ASIC did not pay sufficient attention to the whistleblowers who raised serious concerns about the conduct of Mr Nguyen and the action
As the committee gathered more and more evidence, however, lingering doubts began to grow about the robustness and fairness of the ASIC-sanctioned compensation process for CFPL clients who had suffered losses because of adviser misconduct. The committee could see major flaws in the process being implemented by CFPL, in particular:
the manner in which information about adviser misconduct was conveyed to clients, which rather than reassure clients tended in some cases to intimidate and confuse them;
CFPL’s obfuscation when clients sought information on their investments or adviser;
a strong reluctance on the part of CFPL to provide files to clients who requested them;
no allowance made for the power asymmetry between unsophisticated, and in many cases older and vulnerable clients, and CFPL;
no client representative or advocate present during the early stages of the investigation to safeguard the clients’ interests when files were being checked and in many cases reconstructed;
numerous allegations of missing files and key records, of fabricated documents and forged signatures that do not seem to have been investigated;
the CFPL’s initial offer of compensation was manifestly inadequate in many instances; and
the offer of $5,000 to clients to pay the costs of an expert to assess the compensation offer was made available only after the CFPL had determined that compensation was payable and an offer had been made.
Recent developments, whereby both ASIC and the CBA have corrected their testimony about the compensation process, have only deepened the committee’s misgivings about the integrity and fairness of the process. The committee is now of the view that the CBA deliberately played down the seriousness and extent of problems in CFPL in an attempt to avoid ASIC’s scrutiny, contain adverse publicity and minimise compensation payments.
In effect, the CBA managed, for some considerable time, to keep the committee, ASIC and its clients in the dark. The time is well overdue for full, frank and open disclosure on the CFPL matter. The committee is concerned that there are potentially many more affected clients that have not been fairly compensated. The clients that gave evidence at a public hearing were exceptional in that they were willing to voice their concerns publicly and were able to fight for compensation because of their circumstances. They were fortunate because they had a family member determined to assist them, were able to obtain independent expert advice, or were able to obtain a copy of their original file from one of the whistleblowers.
At this stage, the committee’s confidence in ASIC’s ability to monitor the CBA’s implementation of its new undertaking regarding the compensation process is severely undermined. Furthermore, the CBA’s credibility in the CFPL matter is so compromised that responsibility for the compensation process should be taken away from the bank. The committee considered five options to finally resolve the CFPL matter. But, given the seriousness of the misconduct and the need for all client files to be reviewed, the committee believes that an inquiry with sufficient investigative and discovery powers should be established by the government to undertake this work. To resolve this matter conclusively and satisfactorily, the inquiry would need the powers to compel relevant people to give evidence and to produce information or documents.
The committee is of the view that a royal commission into these matters is warranted.