Financial Planning

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<img src="https://counter.theconversation.edu.au/content/64803/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The move for an inquiry into how banks treat small business customers should not overshadow the ongoing call for a broader royal commission on banks.
Several financial inquries (outlined below) have failed to tackle the growing concentration in the Australian finance sector, or the need to separate general banking from investment banking as the reform process in the United States, UK and Europe is contemplating.
Calls for a royal commission are also underpinned by ongoing reports of misconduct within the banks, summarised in a timeline of bad behaviour below.
Every other major industrial country is at an advanced stage in bank reform, and Australia would be isolated if it did not engage in a similar substantial and structural reform process.
<h2>Financial reform in Australia</h2>
1997 Wallis Inquiry
This inquiry has been associated with the “four pillars” policy towards bank mergers (though the inquiry itself did not propose this), and the opposition to any merger between ANZ, CBA, NAB and Westpac. The unwritten policy originated in Paul Keating’s reservations on concentration in the industry. It also led to the CLERP financial reforms announced on fund raising, disclosure, financial reporting and takeovers.
2009 Future of Financial Advice Inquiry
This inquiry stemmed from industry failures, such as Storm Financial and Opes Prime, and explored the role of financial advisers and the general regulatory environment for these products and services. It resulted in the Corporations Amendment (Future of Financial Advice) Act 2012 by the Labor government to tackle conflicts of interest within the financial planning industry. This was subsequently amended by the Liberal government in the  Corporations Amendment (Financial Advice Measures) Act March 2016 which softened some of the reforms.
2012 Cooper Inquiry
This was a review into the governance, efficiency, structure and operation of Australia’s superannuation system. It examined measures to remove unnecessary costs and better safeguard retirement savings, claimed fees in superannuation were too high, and that choice of fund in superannuation had failed to deliver a competitive market that reduced costs.
2014 Parliamentary Joint Committee on Corporations and Financial Services Inquiry
This inquiry included proposals to lift the professional, ethical and education standards in the financial services industry. It aimed to clarify who could provide financial advice and to improve the qualifications and competence of financial advisers; including enhancing professional standards and ethics.
2015 Murray Inquiry 
This inquiry was intended to provide “a ‘blueprint’ for the financial system over the next decade,” but fell somewhat short of this in not critically addressing the concentration or restructuring of the main banks. While acknowledging the high concentration and vertical integration of Australia’s banking industry the inquiry’s approach to encouraging competition was to seek to remove impediments to its development.
The inquiry aimed to increase the resilience to failure with high bank capital ratios, and to reduce the costs of failure, including by ensuring authorised deposit-taking institutions maintained sufficient loss absorbing and recapitalisation capacity to allow effective resolution with limited risk to taxpayer funds.
In contrast to the limitations of the Australian reform process, more ambitious reform of the banking sector is being actively considered in the rest of the advanced economies. This is because of widespread international concerns regarding bank monitoring and standards, and the continuing threat of systemic risk and failure.
The objective is to create more effective competition, greater choice, improved governance, more balanced incentives, and responsible behaviour and performance. Central to international reform proposals is the intention of:
<ul>
<li>
shielding commercial banks from losses incurred by speculative investment banking
</li>
<li>
preventing the use of public subsidies (eg central bank lending facilities and deposit guarantee schemes) from supporting risk taking
</li>
<li>
reducing the complexity and scale of banking organisations
</li>
<li>
making banks easier to manage and more transparent
</li>
<li>
preventing aggressive investment bank risk cultures from infecting traditional banking;
</li>
<li>
reducing the scope for conflicts of interest within banks
</li>
<li>
reducing the risk of regulatory capture and taxpayers exposure to bank losses.
</li>
</ul>
Among the ongoing international initiatives to reform the banks are the UK Banking Reform Act, which includes ring fencing retail utility banking from investment banking, due for implementation in 2019.
In the US, the 21st Century Glass Steagall Act, proposed by Elizabeth Warren and supported by Democratic nominee Hillary Clinton, involves separating traditional banks that offer savings and checking accounts from riskier financial services such as investment banking and insurance.
In Europe, the Liikanen Plan, announced in 2012, proposes investment banking activities of universal banks be placed in separate entities from the rest of the group. This has already been taken up widely throughout the European banking sector.
<h2>A licence to operate?</h2>
The banks have experienced continuous systemic risk (partly of their own making), erosion of their integrity, and a loss of public trust.
The Australian banks are on notice that they need to renew their licence to operate, to reconnect with their sense of duty and the Australian people, and to reconfirm their responsibilities to the Australian economy. This will occur, even if it takes a royal commission to achieve it.
<h2>A timeline of banks behaving badly</h2>
January 2004: NAB foreign currency options trading
NAB announces losses of A$360 million due to unauthorised foreign currency trading activities by four employees who concealed the losses. Bank risk policies and trading desk supervision prove ineffective. NAB sacks or forces the resignation of eight senior staff, disciplines or moves 17 others and restructures its board of directors. Four traders, including the head of the foreign currency options desk, are subsequently prosecuted and jailed.
2008: global financial crisis takes down Opes Prime, Storm Financial, Allco and Babcock and Brown
The market capitalisation of the stock markets of the world peaks at US$62 trillion at the end of 2007. By October 2008 the market is in free fall, having lost US$33 trillion dollars, over half of its value in 12 months of unrelenting financial and corporate failure. Originating in the toxic sub-prime securities of the New York investment banks, the financial crisis threatens to engulf the economies of the world.
The mythology today is that Australia miraculously escaped the global financial crisis due to the resilience of its regulatory system and the governance and risk management of its banks. The reality is that more than a dozen significant Australian companies went under during the crises (amounting to losses in excess of $60 billion in total). In almost every case at least one of the big four banks were involved in supporting the business models and extending credit to very doubtful enterprises.
July 2012: HSBC money laundering
A US Senate Inquiry discovers that HSBC allowed Latin American drug cartels to launder hundreds of millions of ill-gotten dollars through its US operations, rendering the dirty money usable. The HSBC Swiss private banking arm profited from doing business with arms dealers and bag men for third world dictators and other criminals.
HSBC agrees to pay a fine in excess of US$2 billion to settle US civil and criminal actions. In 2016 it is revealed that UK Chancellor George Osborne intervened to prevent criminal charges against HSBC as this might have undermined financial markets.
2013: Libor rigging
Libor is the international vehicle for settling inter-bank interest rates, and covers markets worth US$350 trillion.
In 2012 it’s revealed that wholesale fraudulent manipulation of the rates has been occurring for years, and throughout the reform process following the global financial crisis. The crisis engulfs many international banks including Barclays, Citigroup, Deutsche Bank and JP Morgan. The irony of the scandal is that Libor was intended as a measure of the state of health of the banking system.
The US Commodity Futures Trading Commission and US Department of Justice impose fines totalling hundreds of millions of dollars on the international banks. In Australia ASIC investigates the role of ANZ, BNP, UBS, and RBS and imposes fines. In 2014 the administration of Libor is transferred to the Euronext NYSE.
2014: Commonwealth Bank financial planning scandal
An ABC Four Corners report reveals CBA customers have lost hundreds of millions of dollars after the bank’s financial advisers recommend speculative investments.
The report describes the sales-driven culture inside the Commonwealth Bank’s financial planning division, with a focus on profit at all cost and a culture that has been built on commissions. The bank is found to have misled potentially thousands of clients.
The bank sets up an internal inquiry and compensation (though is subsequently accused of dragging its feet on compensation). A Senate inquiry into the performance of ASIC during the affair recommends establishing a Royal Commission to examine the banks.
May 2015: Forex manipulation
Following the Libor scandal, it is discovered that traders have been deliberately orchestrating trades in the $US5.3 trillion-per-day global foreign exchange market to their own advantage.
“They acted as partners - rather than competitors - in an effort to push the exchange rate in directions favourable to their banks but detrimental to many others,” says US Attorney-General Loretta Lynch. “And their actions inflated the banks' profits while harming countless consumers, investors and institutions around the globe.”
US and British regulators fine Barclays, Citigroup, JP Morgan, RBS, UBS, and Bank of America more than US$6 billion in recognition of the scale and duration of the fraud.
March 2016: ASIC targets ANZ for rigging the bank bill swap rate (BBSW)
ASIC commences legal proceedings against ANZ for unconscionable conduct and market manipulation in relation to the bank’s involvement in setting the bank bill swap reference rate (BBSW) in the period March 2010 to May 2012. It foloows up with actions against NAB and Westpac.
The BBSW is the primary interest rate benchmark used in Australian financial markets, administered by the Australian Financial Markets Association (AFMA). It is alleged the banks traded in a manner intended to create an artificial price for bank bills.
March 2016: CommInsure payments scandal
The insurance arm of the Commonwealth Bank comes under media scrutiny for operating along similar lines to the earlier financial planning business.
A company whistleblower reveals the measures the bank is taking to avoid making insurance payouts to policyholders, many of whom are sick or dying.
Thomas Clarke professor, UTS Business, University of Technology Sydney and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/thomas-clarke-274" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

Why Australia needs a banking royal commission

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Yellow Brick Road is poised to appoint former the Westpac Banking Corp executive Adam Youkhana as general manager of its wealth unit.
The Australian Financial Review's Street Talk column said Youkhana, former head of Westpac Private Bank's financial planning arm will join the Mark Bouris-led diversified financial services group next week.
He will replace Matt Lawler who resigned in July.
Youkhana joined Westpac in 2010 after a stint at National Australia Bank. 
The appointment comes after a sweeping restructure at YBR which included a shift to a franchise model.
Yellow Brick Road's annual loss rose to $9.5 million from $2.6 million despite annual revenue increasing 31 per cent.
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Adam Youkhana set to join Yellow Brick Road

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The former Principal of Sherwin Financial Planners Pty Ltd and Chairman of Wickham Securities Ltd, Bradley Thomas Sherwin, was sentenced in the Brisbane District Court today to a total of 10 years imprisonment on 25 charges, brought by the Commonwealth Director of Public Prosecutions following an ASIC investigation arising out of the collapse of his financial planning business. 
On 5 September 2017, Mr Sherwin, 63, appeared in the Brisbane District Court, and pleaded guilty to:
<ul>
<li>twenty four  counts of fraud by dishonestly causing a detriment between May 2009 and December 2012 to the value of nearly $10million to a number of clients of Sherwin Financial Planners; and</li>
<li>one count of breaching his duties as a director of Wickham Securities between June 2010 and October 2010 by falsely reporting nearly $4.5m of loans made by Wickham had been repaid. (<a href="http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-300mr-principal-of-sherwin-financial-planners-pleads-guilty-to-fraud/" target="_blank" title="17-300MR Principal of Sherwin Financial Planners pleads guilty to fraud">17-300MR</a>)</li>
</ul>
Mr Sherwin was sentenced to 10 years imprisonment for the fraud charges with an eligibility date for parole fixed at 14 November 2021 and 12 months imprisonment for the breach of director's duties to commence on 14 November 2020.  This means Mr Sherwin will at least 4 years in prison before being eligible for release. 
At the time of committing the offences, Mr Sherwin was the Principal of Sherwin Financial Planners and the director of a number of other companies into which his client's funds were invested without their knowledge and consent (Sherwin group of companies).  Sherwin Financial Planners had been in operation since 1986, and by the time the Sherwin group of companies collapsed in January 2013, they owed nearly $60 million to approximately 400 clients. 
The court heard that Sherwin Financial Planners recommended their clients establish a self-managed superannuation fund into which their existing superannuation funds would be rolled. The client's superannuation funds were then held in a bank account. The bank carried out transactions as requested in email instructions received from Mr Sherwin or another authorised officer at Sherwin Financial Planners. ASIC commenced an investigation into the operation of the bank accounts. In September 2015, ASIC wrote to Sherwin clients advising of its concerns in relation to the processing of transactions in those bank accounts.
Leading up to 2009, the property developing financing aspects of Mr Sherwin's business began to suffer financial difficulties and they did not have sufficient funds available to meet ongoing financial commitments.  The financial difficulties continued until the companies were placed into administration in December 2012 and January 2013.  Prior to the companies being placed into administration, Mr Sherwin used client funds to meet interest payments or to make capital redemptions to other clients, pay for property purchases and construction costs on behalf of his own company, and occasionally to make payments the Australian Taxation Office on behalf of one of his companies.  By 2012, Mr Sherwin was constantly arranging for the transfer of money from one account to another to cover payments that were immediately due and that any plan he may have had to make good the shortfalls owed to his clients could not have been realised.
The court also heard there was a lack of disclosure from Mr Sherwin to his clients about how their money would be invested. 
In August and September 2010, Mr Sherwin arranged for another company to receive nearly $4.5m from Wickham Securities on the false premise that it needed to return funds to a deceased client.  The funds were then returned to Wickham Securities and falsely recorded as repayment of three non-performing loans.  The court heard that if Wickham Securities' Trustee, Sandhurst Trustees Limited became aware of the three non-performing loans, then it would have taken immediate action pursuant to the terms of the Trust Deed to demand repayment by Wickham Securities of the entire amount of debenture notes outstanding.
There were a number of former clients of Mr Sherwin present in court during the sentencing hearing, including three victims who chose to read out their Victim Impact Statement to the Court.  Nigel Jeffares said that as a result of losing all his superannuation, he now suffers from depression and other health issues and is unable to see his adult children and grandchild who live and work overseas. 
ASIC Commissioner John Price said ASIC would not tolerate this kind of misconduct.
"Mr Sherwin's actions caused great hardship to his clients and their families", he said.
"Today's outcome should serve as a warning to company directors and financial advisers who breach community standards - the consequences are severe."
The Commonwealth Director of Public Prosecutions prosecuted the matter.
Background
Wickham Securities was placed into administration on 21 December 2012 and liquidation on 6 February 2013, with Grant Sparks and David Leigh of PPB Advisory appointed as liquidators.  Following the execution of search warrants at the premises of Sherwin Financial Planners on 21 January 2013, a further seven companies associated with Mr Sherwin were placed in administration on 24 January 2013 and liquidation on 27 February 2013 (Sherwin Group). Stefan Dopking, Quentin Olde and Michael Ryan of FTI Consulting (previously Taylor Woodings) were appointed as liquidators. Those companies were:
<ul>
<li>Sherwin Financial Planners Pty Ltd (Sherwin)</li>
<li>DIY Superannuation Services Pty Ltd (DIY Super)</li>
<li>Wickham Capital Pty Limited</li>
<li>Astor Funds Pty Ltd</li>
<li>Reacroft Pty Ltd</li>
<li>Blue Diamond Investments Pty Ltd, and</li>
<li>SP Property Pty Ltd.</li>
</ul>
On 21 January 2013, ASIC also obtained interim injunctions in the Federal Court against Mr Sherwin and the Sherwin Companies, restraining them from dealing with money or property.  
In May 2016, ASIC permanently banned Mr Sherwin from providing financial services (refer: <a href="http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-136mr-asic-permanently-bans-wickham-securities-chairman/" target="_blank" title="16-136MR ASIC permanently bans Wickham Securities Chairman">16-136MR</a>). 
In September 2016, the former Chief Executive Officer of Wickham Securities, Garth Peter Robertson, was sentenced to 5 years imprisonment after pleading guilty to various charged brought by ASIC, including fraud (refer: <a href="http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-288mr-former-wickham-securities-ceo-jailed-for-five-years/" target="_blank" title="16-288MR Former Wickham Securities CEO jailed for five years">16-288MR</a>).
ASIC commenced an investigation into the operation of the bank accounts.  In September 2015, ASIC wrote to Sherwin clients advising of its concerns in relation to the processing of transactions on the Money Market Deposit Accounts. 
In June 2013, ASIC cancelled the registration of the auditor of Wickham Securities, Brian Kingston, after forming the view he failed to carry out or perform adequately and properly the duties of an auditor (refer: <a href="http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2013-releases/13-156mr-wickham-auditor-removed-from-industry/" target="_blank" title="13-156MR Wickham auditor removed from industry">13-156MR</a>).
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jrobinson-rf4aSBido9

Bradley Sherwin, former Sherwin Financial Planner principal sentenced to 10 years in prison

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Following an ASIC investigation, Max Eung, of Tempe, New South Wales has been charged with two offences of obtaining financial advantage by deception.
ASIC alleges that between March 2016 and December 2016, Mr Eung dishonestly obtained a financial advantage of funds totalling $166,500 from accounts held with MLC Limited and Nulis Nominees (Australia) Limited in circumstances where the account holders did not authorise the withdrawal of those funds from their accounts.
Mr Eung was an authorised representative and financial adviser of NAB from May 2015 to December 2016.
He was permanently banned by ASIC from providing financial services and engaging in credit activities in June 2018.
The offences each carry a maximum penalty of 10 years imprisonment.
The matter is being prosecuted by the Commonwealth Director of Public Prosecutions.
The matter has been adjourned by consent for further mention on 7 May 2019 at the Downing Centre Local Court in Sydney.
<a href="https://www.urban.com.au/news/84876-asic-permanently-bans-former-nab-financial-adviser" target="_blank">Last June ASIC permanently banned Max Kiattisak Eung</a> (also known as Kiattisak Eungpongpan) from providing financial services and engaging in credit activities.
While he was a financial adviser with NAB, it was alleged that during this period Mr Eung engaged in conduct including:
<ul>
<li>creating two false bank accounts in the names of his clients;</li>
<li>falsifying documents to open the false bank accounts;</li>
<li>causing withdrawals to be made from client funds to the false bank accounts and misappropriating client funds; and</li>
<li>impersonating his clients to attempt to obtain access to funds in the second false bank account.</li>
</ul>
Subsequently, Mr Eung incorporated a company for the purpose of operating a mortgage broking business and became a Credit Representative to provide credit assistance within that business.
ASIC found that Mr Eung had engaged in dishonest conduct, was likely to contravene a financial services law, and was not of good character. ASIC also found that Mr Eung was likely to contravene credit legislation and was not a fit and proper person to engage in credit activities.
Eung was an authorised representative and financial adviser with NAB from 21 May 2015 to 20 December 2016 and a credit representative of Connective Credit Services Pty Ltd from 14 September 2017 to 23 October 2017.
Eung’s banning will be recorded on ASIC’s Banned and Disqualified Persons Register and the Financial Advisers and Credit Representatives Registers.
The banning of Mr Eung is part of ASIC's Wealth Management Project.
The Wealth Management Project was established in October 2014 to lift the standards of major financial advice providers.
As part of its Wealth Management Project, ASIC has banned 47 advisers and one director from the financial services industry. Four bannings are the subject of appeals, with a further banning stayed pending the outcome of an appeal.
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