Banking Bad

by Adele Ferguson

  A year later, when he was diagnosed with pancreatic cancer, the bank refused to pay his insurance claim on the basis that he had been dishonest about his medical history. On the form filled out by the financial adviser, Stevens had answered ‘no’ to a tick-box question asking if he had a drinking problem, but notes the bank had obtained from the Frankston Medical Centre from November 2009 said, ‘Drinks eight stubbies every night. Counselled about alcohol.’ The bank scrutinised Stevens’ bank statements, logging his alcohol purchases from liquor outlets. It then used what it had found to deny his claim. Scandalously, at the same time it continued to charge him premiums on a policy that was void. If Stevens had remained with Westpac, he would have been paid out in full.

  Stevens took legal action. It was a David-and-Goliath battle: a dying man with $10,000 to his name taking on a multi-billion-dollar corporation in the courts, giving testimony from his bed while he was high on morphine to dull the pain, to fight for something that was rightfully his – a $300,000 insurance policy payout that he wanted to leave to his daughter. Days before he died, Stevens won the case and the bank was ordered to accept the claim.

  But it didn’t end there. As his daughter, Teghan, was arranging her father’s funeral, she was told CBA was appealing the decision. Teghan fought the bank and won the appeal.

  This tragic yet ultimately inspiring story demonstrated to me how far the so-called venerable institution, CBA, was prepared to go to avoid paying out a valid life insurance claim – the bank pressed on even after its legal costs overtook the claim total of $300,000.

  When the Four Corners program ended, I felt a surge of pride. Text messages started pouring in, congratulating the team. Sue Spencer called to say how much she’d enjoyed it. It was a special moment, a highlight of my career.

  The day after the show aired, CBA went into damage control. Branch staff were briefed to stop people closing their accounts in protest. It was the beginning of a long journey. ‘Banking Bad’ would become a game changer, and have a cascade effect that would culminate in a royal commission.

  *

  There was a fresh scandal at CBA that we had discovered during our research for ‘Banking Bad’ but which hadn’t made it into the final cut of the program – a scandal that CBA had managed to keep secret throughout the Senate Economics References Committee inquiry into the performance of ASIC, established in June 2013. It involved a separate financial planning division at CBA, Financial Wisdom; shoddy financial advice that devastated the lives of hundreds, possibly thousands, of customers; and a cover-up by the bank.

  One of the businesses operating under CBA’s Financial Wisdom umbrella was Meridien Wealth, and among its star financial planners was Rollo Sherriff, who worked out of the seaside town of Cairns, in the heart of tropical Queensland. Sherriff had started his career in the 1990s selling Colonial life insurance with his business partner, Michael Irwin. Together they set up Meridien Wealth, and targeted cane farmers, retirees and families in Cairns and Port Douglas. Sherriff and Irwin quickly built a name for themselves as top-gun advisers, based on the amount of financial products they sold. After CBA took control of Colonial Mutual and Financial Wisdom in 2000, the solid reputation of the bank drew in more customers for Sherriff and Irwin and emboldened existing clients to increase their exposure to the planners’ investment schemes, which involved gearing up and investing in high-risk, high-fee-paying CBA products, including margin loans.

  As the sharemarket rallied in the lead-up to the GFC, everyone was making money. But Sherriff’s clients didn’t realise they were sitting on a time bomb, and soon many of them were in trouble. One of the saddest cases was Bob Nissen, who had sought advice from Sherriff in 2006 to get his finances in shape. At the time, the sixty-year-old’s daughter, a paranoid schizophrenic, was becoming increasingly dependent on him. ‘I told [Sherriff] the priorities were to look after my daughter [and] get my house sorted out because it was falling down around my ears,’ he said. Nissen signed up with Sherriff, believing his life savings would be safe. ‘Because of the Commonwealth Bank I thought it was rock solid, you can’t go wrong there.’ Sherriff advised him to gear up and invest in mainly high-risk, high-fee-paying CBA products. Then in June 2008, even as the GFC was starting to gather momentum, Sherriff advised Nissen to gear up some more by re-mortgaging his house and borrowing $150,000 from CBA. Nissen agreed. He subsequently lost everything and to make a living had to work gruelling twelve-hour days, seven days a week, two weeks on and two weeks off, in the mines at Cloncurry, near Mount Isa, with men less than half his age.

  During our investigation into Financial Wisdom and Meridien Wealth it became clear that Financial Wisdom was a mirror image of Commonwealth Financial Planning. Sherriff was operating at the same time as Don Nguyen and others were riding high there. Under pressure from CBA investors to make the Colonial Mutual acquisition work, CBA had been reluctant to dump planners who earned them big money. Rollo Sherriff was one of the biggest individual writers of margin loans in Queensland, at a time when the bank was competing with other financial institutions and trying to grow its market share. Meridien Wealth had amassed a base of three thousand customers and had more than $135 million in funds under management, which was largely invested in Colonial products. It was all too lucrative for CBA to pull the plug on.

  It wasn’t just CBA that was behaving this way. Armies of advisers at AMP and other organisations were all at it. These companies had paid a fortune to expand into wealth management and were under immense pressure to sell as many bank products as possible. Even their own compliance departments – which are supposed to make sure financial planners are giving appropriate advice – could do little to resist this pressure. Rod Gayford, who had worked at ASIC before becoming a compliance manager at CBA, said that compliance at the bank was seen as the ‘business prevention unit’.4 Compliance officers were not allowed to do their job. They weren’t allowed to interview clients, and if inappropriate advice was discovered, or a planner was rated critical risk, the usual response from the top was to give the adviser another chance. It created a culture where performance was rated above all other criteria and misconduct had no consequences. Everything was covered up, and usually ASIC was missing in action.

  In the case of Meridien Wealth, CBA first became aware of Sherriff’s practices in the early 2000s, when he was found to have given poor advice to clients. It was forced to compensate a number of these clients after they lodged complaints. Sherriff’s conduct caught the attention of the professional body, the Financial Planning Association (FPA), which culminated in a decision in October 2004 to withdraw his status as a certified financial planner. It was a gutsy move on the FPA’s part, but it was short-lived. CBA came down hard and backed Sherriff, threatening legal action if the decision wasn’t reversed. The FPA thought better of taking on the bank, and reinstated Sherriff in March 2005.

  Meanwhile, CBA quietly compensated a number of Sherriff’s customers in the early 2000s. They included Mareeba car dealer Kevin Day and his wife, Ellen, who had lost more than $1 million of their hard-earned money and been left owing $150,000 in loans, after being leveraged into margin loans by Sherriff. In distress, Day had turned to ASIC for help, but the corporate regulator sent him polite replies and tuned him out. Day then took Rollo Sherriff to court, but CBA stepped in and fought the case on Sherriff’s behalf.

  Day spent five years battling CBA before settling. By then his wife had cancer and his legal bills had mounted to $110,000. As part of his settlement, which went nowhere near what he’d lost, Day signed a confidentiality agreement and tried to get on with his life. But he never got over the ordeal or the belief that CBA had ripped him off. He kept 30 kilograms of documents in his attic, hoping that one day he might use them, and after he saw our exposé in 2014 he dusted them off and got in touch with me. But despite subsequent assistance from Jeff Morris, he never obtained a satisfactory settlement, and in 2015 he sadly passed away.

  *

  As part of our investi
gation into Financial Wisdom, my colleague Mario Christodoulou and I sent a series of questions to CBA asking how much compensation the bank had paid to clients burned by scandal. When I received the response, I noticed the figure differed from the one it had given to the Senate at the 2013 ASIC inquiry. It was a big deal because it meant CBA had misled parliament and, as ASIC had relied on CBA’s figures in its submissions, so had the government regulator.

  I wrote a column for the Sydney Morning Herald and The Age pointing out the deception.5 According to well-informed columnist Tony Boyd, when the chairman of ASIC, Greg Medcraft, read it, he went ballistic at the bank. According to Boyd, Medcraft phoned Ian Narev, telling him to come to his office and explain the disparity. Narev rushed there with his two lieutenants, general counsel David Cohen and the iron-fisted head of the bank’s scandal-ridden wealth management arm, Annabel Spring. Spring, according to Boyd, blamed the misreporting on a ‘stupid mistake’ someone had made inside the bank.6

  On 17 May, in response to being misled, ASIC revealed it had amended the licence conditions for CBA’s financial advice businesses and that the licence would be suspended or even revoked if the bank breached the new conditions. ASIC also instructed CBA to re-examine the case for compensating the victims of Rollo Sherriff and other advisers at Financial Wisdom and Commonwealth Financial Planning, which it did.

  *

  After the scandal on Sherriff broke, numerous former staff, compliance managers and other victims called or emailed me. One of them was Darryl Tenni, who told me about his father, retired Queensland sugar farmer Myles Tenni. Myles had invested $800,000 of the $1.2 million proceeds from the sale of his sugarcane farm in the late 1990s in CBA products and then taken out a further $800,000 in margin loans to invest in more CBA products, based on advice received from Rollo Sherriff. By 2004, he had lost most of his money.

  Like Kevin Day, Myles Tenni had complained to CBA. He, too, had been fobbed off. Somehow, though, Tenni had scraped together enough money to hire accounting group William Buck to investigate whether he had a case for ‘negligent advice’ from Financial Wisdom. The report he received concluded that if he hadn’t made further investments using a margin loan – as advised by Sherriff – his initial $800,000 investment would have gone up by 30 June 2004, instead of falling $333,941. This contradicted CBA’s response to him, which had said that although ‘the funds weren’t invested appropriately’ it hadn’t cost him money. He applied for compensation after the bank was forced to revisit old claims as part of its licence agreement with ASIC and was offered $625,000, which he accepted in 2016 – more than fourteen years after losing the money. He believed the bank owed him far more than that, including compensation for all the pain and suffering.

  In February 2010, by which time his status as a big writer of business had slipped, Sherriff left Meridien Wealth, just as the bank launched an official investigation into his conduct. A month later, on 18 March 2010, a senior manager of advice and regulatory affairs employed by CBA lodged a breach report to ASIC. By the end of March, Sherriff had declared himself bankrupt.

  Further revelations about Sherriff’s practices, including pressuring clients into buying shares in a company of which he was a director, resulted in a request from a liquidator to ASIC to pursue more detailed investigations. ASIC refused. A Freedom of Information request, lodged as part of our research, revealed that on 4 November 2013 Joanna Bird, who was then senior executive leader of ASIC’s financial advisers’ team, had sent emails to Peter Kell, ASIC’s deputy chairman, with a summary of reasons to withdraw from action in relation to Rollo Sherriff. The request was declined and they did not release the details of those reasons.

  ASIC stood by its decision not to pursue Sherriff and CBA. In a statement it released at the time of The Age and Sydney Morning Herald article about Sherriff and Financial Wisdom, it said it had considered a range of factors before deciding not to take action, including Sherriff’s decision to leave the financial services industry.

  When I tracked Sherriff down on the phone in Cairns in 2014, he denied any wrongdoing and blamed his client losses on the GFC. He told me while he was ‘regretful clients suffered losses’, the financial advice he’d given had been properly delivered. He said he had lost money too.

  Haunted by what had gone on at Meridien Wealth, one of the partners, Peter Percali, who had repeatedly informed CBA about Sherriff over the years, tried to help clients with compensation claims. But, he told me, he was ultimately silenced by the bank. Percali said CBA pressured him to sell Meridien Wealth. He owed money to the bank, so he agreed to sell in exchange for debt forgiveness, but the deal meant he had to sign an agreement preventing him from assisting Meridien Wealth clients. He described that arrangement to me as blackmail.

  Over the years I have kept in touch with many victims of Financial Wisdom, including Bob Nissen, who is now living in poor health on the pension and struggling to make ends meet. He said he received his last payment from CBA two years ago, but it wasn’t enough. ‘We recovered about two-thirds of our losses,’ he said in an email.

  He still remembers 2008 and the GFC, when he watched his savings being wiped out and his life almost fell apart. ‘I was desperate, I was panicking,’ he says. ‘There were some nights I couldn’t sleep, worrying, “What am I going to do?” It all disappeared.’

  Nissen has gained a new appreciation of what constitutes misconduct. ‘You grow up thinking a criminal looks like a beagle boy in the cartoons but in reality they are over forty, wear a suit and live on the North Shore. It is human nature that there are some people who if temptation is in front of them cannot resist and will ignore the effect on others . . . These people missed something as a child. Take care. You are doing a great job . . . Bob.’

  Chapter 8

  Reluctant concessions

  CBA in damage control

  MY FOUR CORNERS PROGRAM ‘Banking Bad’ and the subsequent articles in the press had unsettled the banks. But Australia’s financial services sector was rocked to its core in June 2014 when the Senate Economics Reference Committee released its report on its inquiry into the performance of ASIC, concluding: ‘The committee is of the view that a royal commission is warranted.’1

  A call for a royal commission into CBA to investigate fraud, forgery and allegations of a cover-up inside its financial planning arm was the most explosive of the recommendations of the scathing 553-page document. The committee – chaired by Labor Senator Mark Bishop, with other members including Wacka Williams, Greens Senator Peter Whish-Wilson and independent South Australian Nick Xenophon – made sixty-one recommendations, including that CBA should reopen its existing compensation program for financial planning victims and review offers already made.

  The report aimed to right the wrongs of the CBA scandal, and investigate other institutions, including the Macquarie Bank’s financial advice division, Macquarie Private Wealth. It also sought to rebuild public confidence in the regulator. Nevertheless, a royal commission was required, the committee said, because it was not convinced that ASIC could be trusted to achieve these goals: ‘The committee is now of the view that the CBA deliberately played down the seriousness and extent of problems in Commonwealth Financial Planning 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 Commonwealth Financial Planning matter.’2

  The report’s criticism of ASIC was withering: ‘ASIC has limited powers and resources but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers . . . ASIC needs to be respected and feared [but it] has shown that it is reluctant to actively pursue misconduct within Commonwealth Financial Planning and Financial Wisdom; rather, it appears to accept the information and assurances the CBA provides without question.’3 The committee
found it particularly troubling that ASIC was consistently described in submissions and various testimony as being slow to act or as a watchdog with no teeth.

  It wouldn’t have been a surprise to ASIC, which had taken a shellacking during the inquiry. At one stage ASIC chairman Greg Medcraft had raised his hands and chanted ‘mea culpa’ as Mark Bishop, Wacka and Peter Whish-Wilson got stuck into the poor treatment of whistleblower Jeff Morris and ASIC’s cosiness with the bank.4

  Mark Bishop had become convinced that the entire sector needed to be further scrutinised. Then a senator based in Perth, he had been involved in hundreds of Senate inquiries by the time he came to chair the probe into ASIC. At the outset he’d had low expectations, believing the inquiry would be unremarkable. But he had soon changed his mind as he listened to the whistleblowers, lawyers and victims who gave evidence. By the end of the inquiry he was convinced the major banks regularly engaged in grossly negligent behaviour, fraud and unacceptable business practices to the detriment of thousands – possibly millions – of customers, virtually unimpeded by the so-called corporate cop. It became clear to him that the problem with CBA was cultural during one particular exchange with the bank’s legal counsel David Cohen, who summed up the rampant misconduct as ‘inappropriate’. Bishop now says he saw that as a ‘fuck you to the Senate’:

  Bishop: Does the term ‘inappropriate advice’ capture the seriousness of misconduct at Commonwealth Financial Planning? If I wear a brown tie and grey suit, my wife will say to me: ‘They don’t match. That’s inappropriate.’ . . . Do you think ‘inappropriate advice’ captures the seriousness of what occurred here: the fraud, the doctoring of files, the lying to clients, the cheating, the lack of oversight by senior executives? Is ‘inappropriate’ the exact, correct description?