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Cba Financial Planning Scandal July 2014 SMSF Specialists Investment Management Financial Planning Accounting Thompson. Both Phil and Alastair each have over 30 years prac- ticing experience and are assisted by two recent accounting IN THIS ISSUE graduates, Kushal Sharma and Ivan Yeung as well as two further • GFM Accounting – get organised early! support staff, Miryam Schejtmen and Shimla Prasad. • CBA Financial Planning Scandal The constant frustration of many of our clients is that their • 2013/14 Financial Year – Another Bumper Year current accountants do not provide pro-active accounting • Jack Watt – Client of GFM since 1996 advice, rather “they go through the motions” without any real • Deeming of Account Based Pensions from thought of tax minimisation. The GFM Gruchy team work hard 1 January 2015 to ensure you get pro-active accounting. It is critically important you ensure your accounting affairs are well • Staff Profile – Denise Slattery structured and managed and you pay the least amount of • Upcoming seminar - Monday 18th August 2014 at tax possible. 12.00 noon – Estate Planning Creating Certainty • Superannuation, Centrelink Age Pension benefits Our accounting firm is not only able to help with personal & Personal Taxation impact from the 2014 Federal returns but can also assist with the following services: Budget – Seminar June 2014 • Partnership Returns • Upcoming new website launch • Family Trust Returns • “Best Interests Duty” – Who is your financial adviser • Company Tax Returns really working for? • Wealthy investors favour SMSF’s • Business Activity Statements • Do you know where you are going? • Bookkeeping Services • Compulsory Superannuation Guarantee Charge • Financial Statements With the end of financial year 2013/14 just finished, we are in a strong position to be able to assist you with your personal tax GFM ACCOUNTING: returns for those that want to get organised early and possibly GET ORGANISED EARLY! get their refund ASAP. By Paul Nicol If you would like to consider having us assist with your personal taxation affairs, please do not hesitate to give your adviser a In our March 2014 edition of Trade Secrets, we informed call and we can discuss how this would work with an estimate our clients that, effective from January 1, we acquired of the likely cost. specialist accounting firm P. Gruchy and Associates which has now been rebranded GFM Gruchy Accounting. CBA FINANCIAL PLANNING It has been a long term ambition of our business here at GFM to have the ability to offer our clients a full in-house “one stop” SCANDAL financial services offering encompassing both Financial By Tony Gilham Planning and Accounting. Our desire was very much “borne out” of how complementary good Financial Planning and There have been many investment and Financial Planning Accounting advice is. scandals over the last 10 years, but it would have been hard to imagine that Australia’s biggest financial institution, Whilst our Accounting acquisition is Commonwealth Bank would potentially be the subject of a only relatively new, we have been pleas- Royal Commission into poor financial advice, fraud, forgery, antly surprised by the number of clients deception, and exotic high risk investments. who have expressed an interest in having us complete their personal We have all read stories regarding the collapse of Storm income returns. We also had several Financial, Westpoint, Opes Prime, Trio/Astarra, Sonray Capital clients who had not completed their Philip Gruchy and Great Southern Plantations, but we never once thought financial year 2012/13 returns contact that the mighty CBA would be mixed in with this group. us for which we quickly lodged and Back in May 2014, the ABC “4 Corners” programme, shone a completed these returns. These clients light on the Senate Economics Committee investigation into were extremely complementary of the shoddy practices by CBA Financial Planning, with a history accounting advice and service they going back to 2003. We watched the programme and received. concluded that it was the “biggest hatchet job” done on a public The two senior accountants of our company in Australia. The content of the programme could only have been aired on the ABC, as the other commercial TV firm are Philip Gruchy and Alastair Alastair Thompson Gilham Financial Management Pty Ltd Suite 4 1221 Toorak Road, Camberwell VIC 3124 ABN 69 006 679 394 T: (03) 9809 1221 F: (03) 9809 2055 Australian Financial Services Licence No. 229401 [email protected] www.gilham.com.au channels would have lost all of their advertising revenue from 2008, but did absolutely nothing for 16 months thereafter. CBA, and probably the other banks as well. To date, CBA have paid $51 million in compensation to approx- Being closely involved in the investment and financial imately 1000 CBA Financial Planning clients, and are estimating planning sector, we had been well aware of the CBA financial that the compensation could go up to $250 million. planning problems for quite a few years, but were somewhat surprised at the significant size of the problem. We think that’s rubbish. We are writing about this sordid episode for the first time, With 400,000 CBA Financial Planning clients now offered a free but we suspect that this CBA scandal will go on for many years review, if only 5% of those clients are successful with their to come. review, then based on the compensation already paid, total compensation could easily be in excess of $1 billion. CBA Financial Planning profited over many years from the lucrative commissions paid on risky investment products But the biggest risk to CBA, is the reputational risk, and the fact pushed hard by the CBA management and financial that many good advisors that work in their system will leave, planners alike. to work for what would be “more ethical” Financial Planning practices. Many other advisors within the CBA network will be As a result of the Storm Financial collapse about six years pushed out, and there already has been a significant cleanout ago, the Government has been moving forward with new of management staff in the Financial Planning Division. Financial Planning regulations, basically getting rid of up front commissions, rebates, and other volume bonus It is terribly disappointing the financial planning industry and arrangements. In simple terms, the Financial Planning industry the reputation of many honest and skilful financial planners is is being pushed towards a fee basis, hopefully removing being tarnished by this scandal. embedded conflicts of interest. At GFM, we have no ownership or distribution alignment with CBA was also deeply involved in the collapse of Storm Financial, any bank or financial institution, we are self licensed and proud with the loss by ordinary Australians estimated at $3 billion. of that fact. Our staff are all salaried and not rewarded Litigation against CBA in relation to the Storm disaster is for aggressive sales for 3rd party referrals. We act first and estimated at $270 million paid out in 2013. foremost in the best interest of our clients, something CBA unfortunately did not. Greed and dishonesty, fraud, forgery, inappropriate advice and outrageous commissions, were at the heart of the CBA Financial Planning scandal. 2013/14 FINANCIAL YEAR: Bank tellers were getting bonus payments for directing bank ANOTHER BUMPER YEAR customers to an in-house Financial Planner, and it was reported By James Malliaros that one of the rogue planners, Don Nguyen, was paying a $400 cash referral fee to tellers if he got a client. Another great year for superannuation and personal investors, the second consecutive year of double digit returns for the The Senate report referred to “Commission driven advice”, and major asset classes, and basically all of the major investment an “aggressive sales culture”, and inappropriate and high risk sectors did well. products, forced upon, in many cases, elderly clients with very little understanding of what they were doing. The table below shows the performance of the five major asset classes for the last financial year, and then average returns over On the 3rd of July 2014, Ian Narev, CEO of CBA, offered all CBA the last 5 and 10 years. Financial Planning clients an “open review” of their file and investment portfolio, for clients that transacted with a CBA 2013/14 Last 5 Last 10 financial Planner between September 2003 and July 2012. Financial Years Years There are potentially 400,000 CBA Financial Planning clients Year involved. Australian shares (S&P/ 17.43% 11.20% pa 9.01% pa You would have noticed many of the full page ads that ran ASX 200 Accumulation in the daily papers in the first half of July. Index) Faced with the prospect of the Senate Report recommending International shares 20.30% 11.49% pa 3.92% pa a Royal Commission, Ian Narev was very quick with a full (MSCI World ex-Aus in apology to all past CBA Financial Planning clients. AUD) The Senate Report recommended a Royal Commission because A-REITs (S&P/ASX 200 11.06% 14.32% pa 2.33% pa of the systemic problem with in-house vertically integrated Property Accumulation Financial Planning businesses, where 85% of Financial Planners Index) in Australia work for an entity that is either fully or partly owned by a financial institution. Remuneration practices are heavily Cash (90 Day Bank Bills) 2.70% 3.83% pa 4.87% pa influenced by commission payments, management are chasing Bonds (UBS Composite 6.09% 6.89% pa 6.47% pa lucrative bonuses and are prepared to turn a blind eye to Bond Index) shoddy practices, and the “cover ups” at CBA was a major issue, completely disregarding the interests of their own clients. ASIC was tipped off regarding rogue financial planners, in October It’s almost hard to remember that just over 5 years ago, we economic growth and that seems to be working, but perhaps were at the tail end of the Global Financial Crisis, and the not as fast as central banks would have liked.
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