Investigation reveals millions in payments to financial planners not properly accounted for

Millions of dollars in payments to financial planners are not being properly accounted for, an investigation by Eureka Report has found. Eureka Report’s research revealed that leading fund managers and adviser groups are failing to come clean on “soft dollar” payments that flow directly into the pockets of financial advisers.

In contrast to direct commissions, which will be phased out from 1 July 2012, the sometimes-lavish gifts of hospitality and “sponsorships” – known as “soft dollars” and bestowed on favourite advisers – that run onto tens of millions will live on.

Under a voluntary code established in 2004, fund managers, platform operators and financial advisers are required to maintain registers of a range of payments “which may influence or have the perception of influencing advice”.

But many organisations do not appear to have taken seriously the promises to self-regulate, with our investigation revealing scores of breaches and inconsistencies – and in some cases outright manipulation – that appear designed to understate the value of gratuities they are paying and receiving.

Soft dollar registers obtained by Eureka Report in the last two weeks show that:

• IOOF planning arm Consultum Financial Advisers received $33,000 worth of sponsorship, accommodation and travel in July 2009 from Gunns Plantations.
• In November 2008, BT subsidised a “speed dating” function for single advisers in Queensland.
• Suncorp issued one lucky ANZ adviser with special accommodation at SeaWorld in 2007; while another ANZ planner was given “tickets to Disneyland” in 2005.
• Insurance broker AON collected “strategic partner” payments of more than $400,000 from Suncorp in the past year. AON raked in another $85,000 from an AXA sponsorship in January 2009.
• One authorised representative of the ANZ-owned adviser group Millennium 3 has collected “reward” payments of more than $300,000 from Suncorp in the past two years.
• Last year MLC spent a combined sum of $95,000 sending advisers from Snowball, Millennium 3, Synchron and Capstone on overseas junkets.
• Charter Financial Planning disclosed a $6000 “key partner” payment from Suncorp and a $36,500 payment from Zurich Financial Services. The payments are disclosed as having occurred on “December 4, 2010” and “December 15, 2010”.

Under the code established by the Financial Services Council (FSC) and the Financial Planners Association (FPA) in 2004, fund managers, platform operators and financial advisers are required to maintain what are known as Registers of Alternative Remuneration, which are meant to record payments of more than $300 to advisers.

The code stipulates they are to be made available to members of the public on request within seven days. According to the code, alternative remuneration includes:

• Travel and holidays.
• Accommodation and entertainment.
• Sales bonuses and cash gifts.
• Sponsorships of financial advisers.
• Payments to cover office rents.
• Provision of computer hardware and software.

The most worrying development is that the giants of the industry – Colonial First State Investment Management, ING, AMP, BT Investment Management and MLC – have in the past month issued misleading versions of their registers – misleading because they are incomplete and do not accurately reflect the full extent of the payments made and received by the fund managers and their immediate wealth management subsidiaries.

Although we would like to claim that these instances were isolated, they were endemic. And if it wasn’t bad enough that your financial adviser’s $600 bill at the Racecourse Hotel was being picked up under the auspices of relationship building, you would at least hope the recording of such payments were accurate.

BT doubles up on registers

In one case, that of BT Investment Management, Eureka Report has evidence of the register being edited.

While we were waiting for the customer service centres to process our inquiries, we contacted the media units of these fund managers and requested the registers from them.

BT’s media unit was one of the first to furnish a document, replete with details of more than 500 payments including big-volume bonuses doled out to dealer groups such as Professional Investment Services, and two payments totalling $36,000 made in the past five months to AMP under a “partnership program”.

What should have been the same register, supplied through customer service channels, contained noticeably fewer details of these and all other payments. It had been edited, with all references to dollar values of payments deleted.

This suggests that retail investors who don’t push hard enough are likely to be fobbed off with an incomplete register.

More discrepancies revealed

Because the registers disclose payments going both ways – paid and received – we can reveal that some wealth management firms are having difficulty recording payments accurately.

AMP in particular had trouble accurately disclosing all the forms of alternative remuneration it gets from other wealth management firms.

The group’s subsidiaries – AMP Life, AMP Capital Investors, AMP Financial Planning and another advisory arm Hillross Financial – boast the thinnest “soft dollar” registers in the industry because they are incomplete.

We asked AMP’s media unit to furnish a group-wide register of alternative remuneration and were sent the registers of the four subsidiaries.

None of the registers disclose the $36,800 received from BT under its “partnership program”. According to BT, the first payment, for $18,029, was paid on 31 August this year; and the second, for $18,816, on 6 September.

Nor is there disclosure anywhere in the Hillross register of a $33,584 benefit received from Suncorp on 26 February this year. As we went to production, a spokesman for AMP questioned Suncorp’s decision to include this as a soft dollar payment, insisting it was a commission.

Suncorp revealed this in its register as a “strategic partner payment” for the 12 months to the end of December to the licensee of Hillross.

And there is more.

AMP Financial Planning states that there was “no activity” on its register in the June quarter. Not so, according to Suncorp.

On 21June, Suncorp reports that it paid AMP Financial Planning $2000 to sponsor a conference in NSW.

IOOF adviser group Bridges reports that it received a $22,000 sponsorship payment from AMP Capital Investors on 12 January. AMP Capital Investors did not disclose the payment.

Is ASIC asleep at the wheel?

The sad reality is that after six years, this novel exercise in self-regulation has failed.

Since the code took effect neither ASIC nor the Financial Services Council (formerly known as the Investment and Financial Services Association) has been monitoring the quality of disclosures made by wealth management conglomerates such as BT and Colonial.

But in only a few days of cross-checking these suspect registers, Eureka Report found a slew of inconsistencies in reporting, a number of which appear to constitute clear breaches of the code.

The code is a joke. But not a very funny one.

The FSC admits it is not actively scrutinising the registers and ASIC has washed its hands of responsibility.

This article first appeared on Eureka Report

For more detail on the discrepancies and a guide to how you can find out if your financial adviser has been given any “sweeteners” click here to subscribe to the Eureka Report