Kevin Whitting was formerly an authorised representative of now-defunct Kedesco Pty Ltd and a salaried adviser at Shelbourne Financial Services on the Mornington Peninsula.
He was banned by ASIC for four years in May 2011.
In November 2013, Mr Whitting was convicted on five charges of providing inappropriate advice and five charges of providing false and misleading statements to clients.
He was 72 years old at the time.
Now, Mr Whitting has shared his story with ifa, offering some information he claims was not presented in court at the time of his conviction.
He hopes his untold account will offer a new perspective as well as act as a warning for other advisers.
Fund in trouble
According to Mr Whitting, there was no incentive for him to recommend clients invest in the Blue Diamond Deposits Trust, but he did so for more than 10 years.
“This was based on the fact that distributions were always paid on time and redemption requests were paid on an average of two weeks,” Mr Whitting said.
That was, however, until one day he noticed redemption requests were taking longer than usual to process.
“I immediately suspended any further investment into Blue Diamond and requested a personal meeting with the managers … I was told that the trust had received an unexpected volume of redemption requests and that the trust was experiencing a temporary cash flow problem,” Mr Whitting said.
“They told me that, in view of the cash flow problem, they had sold a trust asset and that the funds from the sale would arrive in the next few days and cash flow would be restored and all redemption requests would be met.
“Having had previous dealings with Blue Diamond management over a number of years, I saw no reason to doubt their word.”
Mr Whitting later received this explanation in writing (one of the pieces of information he claims was not presented in court).
With the fund’s promise at hand that it will “continue to meet redemptions”, Mr Whitting proceeded with the clients’ investments he had previously put on hold.
But it was not long – only three months, in fact – before Mr Whitting discovered the truth: the fund was on the cusp of collapsing.
“My mistake was to ever trust the Blue Diamond management.”
The consequences
Mr Whitting was ultimately banned from the industry after five of his clients lost a collected total of $684,000 in the fall of Blue Diamond.
According to a 2011 ASIC press release, an investigation found that Mr Whitting had made “false and misleading statements” to clients by describing an investment in Blue Diamond as a fixed interest investment, when this was not the case.
He had also failed to determine the personal circumstances of his clients when giving advice, the statement said.
After pleading guilty, Victoria’s Frankston Magistrates’ Court convicted Mr Whitting of all charges and fined him $5,000.
Mr Whitting today does not refute ASIC’s charges, but believes no consideration was given to his motives and the circumstances that led to his errors.
“They seemed to concentrate on the technicalities of my case and were focused purely on gaining a conviction to justify the resources they expended in pursuing me,” he said.
“My unblemished clean record of 30 years as a financial planner didn’t seem to matter.”
But what Mr Whitting does regret is that his character statement was not presented in court, which includes an apparent quote from an ASIC representative stating that Mr Whitting had “tendered military service material and references, which satisfies me that he is a person of integrity”.
Mr Whitting said, “I willingly admit that I am not perfect and that I, like everyone else, can make mistakes.”
Life after banning
Mr Whitting describes these past events as having “deeply affected” him. He said he suffered reputational damage and has been unable to return to the industry even after the ban expired.
But what hurt the most, he said, was the harm to his clients.
“There are many sad stories of these unfortunate people that would break your heart. It certainly broke mine and not a day passes that I don’t think about them and how their lives were changed,” he said.
“My clients were not just clients, but were also my friends. My life has changed forever.”
Mr Whitting hopes his story can be a lesson for other advisers.
“Trust no one, get everything in writing and check answers for dishonesty, especially when dealing with fund managers,” he said.
“I have always led an honourable life. This is not the way I want to be remembered.”
Have you had similar experiences of injustice or enforcement activity? Speak to us on or off record editor@ifa.com.au
Then there is the old wisdom of eggs in baskets. The only “risk free” is the government bond or guaranteed deposit and from there on up there is risk and especially in second grade debt or in leveraged property. I was there in 87, 90, 94, 2000, 2008 etc … same story every time. But my ( 4 different) licensees would not allow more than 10% in anything other than large well known managed funds that already spread thier portfolios in any case. Having said that, It is the licensee who should be on the block , not the adviser and certainly only after due process.
I disagree. The underlying investments and strategy are often not very clear and there will always be financial planners and consumers who will be sucked in by the slick marketing of product manufacturers. We need to learn from other professions if we want to prevent this from happening in the future. How do you think doctors select medications for their patients? Do you think they read the research, test the products and interview the product manufacturers? A small number do, but the great majority do not. They pick up the MIMS guide from their shelf and have a look at the products which are approved and classified by the TGA. They read the notes from the regulator and select a product which is suitable for their patients circumstances. They still get slick marketing campaigns from pharmaceutical companies. But there is a baseline level of product knowledge provided by the regulator to protect doctors and their patients. It is a bloody disgrace that we don’t get this service from our regulator. Especially after avalanche of failed products during the GFC. ASIC continues to point the finger at us and they claim we are not professional. But they accept no responsibility themselves. It makes my blood boil when I read stories like Kevin’s. He admits he made a mistake, but an appropriate regulatory framework would not allow such mistakes to happen in the first place.
Understand where you are coming from but getting a high risk fund confused for low risk fixed interest isn’t good enough when someone is relying on your advice. This would be a completely different story if it was disclosed as being high risk then went under.
Accident or not, its like a Doctor recommending Chemotherapy instead of Aspirin. The doctor would be held to account.
Agree, “Doctor” is responsible and is accountable. So why exclude “Big Doctors” like CBA NAB ANZ and so forth. The law should be consistently applied. We all agree that there is a breach but the breach applies is only applied to small advisers as in this case and not applied to the big ones.
your comments are well founded and intelligent. everyone makes mistakes. banning someone and preventing them from earning a living is not the right approach. I thought ASIC’s approach was to educate and assist then enforce (repeat offenders). Ask any teacher, humiliation and learning do not go hand in hand. public condemnation of an adviser does nothing to build consumer confidence. So why does our regulator continue to behave this way unlike any other (there are countless examples to be given)? why does no one ask this question? Do they have a hidden agenda? If they really want to be seen as a tough cop on the beat, why not cancel commonwealth bank’s AFSL or suspend AMP. Go on just try. Oh, right they have 1,000 more lawyers and money than ASIC or the government does. so let’s pick on the small adviser and make an example out of them. nefarious conduct i bloody think so. and like you my blood is boiling too. i have just started to decline clients and refuse to provide advice. they can call ASIC or the government. no one has to work under these abominable conditions
Thank you for sharing your story Mr Whitting, having had similar dealings myself which resulted in me taking ASIC to the AAT and WINNING, but as you say the damage that ASIC does to ones reputation is irreversible, even when ASIC are 100% in the wrong. I believe that questions about ASIC s incompetence and relationship with the BANKS have not been answered.
pure and simple violations of your human rights. we are entitled to the presumption of innocence (Woolmington V Director of Public Prosecutions, 1935). they cannot continue to violate common law, the issue is no one is there to take issue with this, why can’t we advisers bring a class action against ASIC for violation of our constitutional right
Obviously a few took offence to my comment.
In case it needs clarification, I am not saying he should have known the fund was going to go under.
He was however convicted because he was apparently recommending this as fixed interest to clients. I don’t see how anyone could not see issue with that.
I don’t agree with the notion ‘he gave it a crack, how was he supposed to know this wasn’t low risk fixed interest’. A financial adviser is supposed to be a professional in their field and you SHOULD know what you are recommending. If you don’t go and upskill.
Very interesting insights and an interesting view from the advisers point of view of what ASIC’s agenda has always been about with all of their cases – convictions not reform.
Reality’s reality is wow – hopefully he is an adviser using all of the products on his AFSL in the clients best interest. With so many products on a AFSL there is no way that an adviser can know all there is to know about all products. That is why advisers tend to stick to a few products that they know and are from reputable fund managers to hopefully avoid this problem of the fund manager going broke. Unfortunately it doesn’t always work. Now the interesting things about reality’s comments is that based on this and ASIC behaviour in this case, ASIC should be going after ever adviser who had a client in a fund which has been frozen and the clients have lost money as a result. Why? Because reality believes the advisers ‘knowledge on investments was nowhere near up to standard and he shouldn’t have been practicing anyways’. Very hard. My recollections is that most of those frozen products were being marketed like bank cash management accounts with withdrawals instantaneous. (Based on the time of this event Blue Diamond would appear to have been one of these that didn’t freeze but perhaps should of). A ludicrous proposition we all know now but fully accepted by everyone including ASIC at the time. Product providers also need to start coming under ASIC scrutiny for inappropriate management of funds as well, and are the funds being run and invested in in accordance to their marketing materials. Be they successful funds or not.
I don’t question whether or not he should have known the fund was going under…
I question how an ‘investment professional’ could not understand this was a high risk product. If you don’t understand the investments you are advising, stick to what you do know.
Incompetent people like this just cause more crap for the rest of the industry. I don’t care what it was marketed as… If the African prince calls you to tell you about an amazing investment proposal do you take his word for it or actually look into it yourself?
I feel for David – caught in the cross hairs of ASIC and an impractical funds mgt system. i think the simple reality of research by advisers is almost impossible at a detail level and in a timely manner – ie if we could analyse the fund and transactions of a fund on a weekly basis then we might see things like this case coming…maybe quick enough to do the SOA’s and gain authority to exit the said fund…reality? no time to do it quickly enough for all affected clients, no access to the detailed info. So we listen and ask questions of the fund rep and ask a research company to look at the detail… then the research is fine for how long? a month tops. Yet it won’t be researched again for maybe 12-24mths and still retains the original rating. With APL’s so large can someone please suggest how an individual adviser can deal with this in a way that suits ASIC/FOS and clients? It is easy to say the AFSL should do this…yet the buck stops with the adviser more often than not. if an adviser only uses say 6 funds for all clients, then best interest duty is likely to cause offence. A small AFSL does not have the resources to do weekly or monthly in-depth analysis of every fund on the APL..a large one probably doesnt want to allocate resources in this way. Answers anyone? Or is this really a way for ASIC to force everyone into the insto space or even worse, to only have one type of client in one vanilla portfolio of index funds so there is no room for corporate failure without large (insto) money to compensate clients and pay fines…. killing the small advice practices.
this is the intended outcome by the large institutions, who by lobbying effectively and enacting legislation enforced by ASIC, to ensure small advice practices are extinct. game up for small advice practices just as intended. that’s all folks
REALITY may be a bit blunt but I think his message is correct. By the way, what’s an “FoP”? As one contributor wrote one has to question who allowed the product on the approved list. The licensee must carry high accountability if they approved and monitored it. If it wasn’t on an approved list then has to question Mr Whitting’s skills or motivation. Mr Whitting sounds very much like one of the old style advisers who rely on personality and relationships not knowledge and this subset of advisers, who often do have good moral values, are not suitable for a professional industry.
Exactly.
Relationship management is great until you lose clients a bucket load of money because you have no idea what you are doing. If you think something paying a regular distribution = Fixed Interest then you shouldn’t be advising on investments.
I feel for the adviser and also his client who suffered losses. What I do not understand that how can an adviser do the checks and balances for the recommended entities we place the investments into. There should be some mandatory reporting so the advisers have the information to make an investment advice. The law fails in this area.
Secondly, the current LAW is blind and only acts harshly on the small advisers. Why not look at the pass 10 years and see the records of the big major financial institute like CBA, ANZ, NAB etc. Why does ASIC not suspend their licenses. We all have seem what the banks get away with. Why is the LAW hard and harsh on small individuals.
We all have to wait for another GFC or similar circumstances or event before all current advisers face the similar results.
in response to the second part of your posting. the law is not blind. [b]it is effective and operating as intended.[/b] what is ASIC going to do? shut down the CBA or NAB? that would be insane, they can’t, they employ too many people. they just keep giving undertakings, external reviews etc etc. finally, ASIC is beginning to question culture and ethics; in the meantime small business people like us who work hard to make a difference are being made a scapegoat. shameful.
So many more of these type of advisers need to be moved on those that did not do their homework or sought independent research on the investment.
The last 20 years is littered with these type of investments – if you look at the underlying securities a prudent person would run a mile – recent one like City Pacific ; L&M Investments and the initial one after ASIC was set up the Family Security Friendly Society.
The sad story here is ASIC fails in taking action on these pyramid type investments ( need money in to pay out interest, the funds are usually onlet to $2 Pty Ltd company usually with a connection to the directors) until it is to late then engages so called experts who have created these problems for their Court action only to lose – L&M is the latest prime example.
You would expect by now that ASIc would be experts in stopping these type of investments – time for a new skill set at ASIC.
This sounds like a sad story but surely he knew that his clients were investing in mortgages and property related assets that carried a whole range of non-performance risks. No doubt the ‘fixed returns’ were higher than bank interest. Just because the fund paid a return in a fixed payment manner does not mean the investment assumes the same low risk level as fixed interest securities like bonds and cash. This is very basic advisory stuff and would be the reason that the investors who lost money would have been so angry with the adviser. For any adviser to cry about the fact that his character was not taken into consideration, or that the fund’s useless written explanation was not tendered in court, ignores the bleeding obvious that clients were duped by an incompetent adviser (regardless of his motivation or good heart). Sorry, but I’m with ASIC on this one.
I also had dealing with Blue Diamond Trust (BDT.
I was aware of their situation.
I reported them to ASIC.
I told wrote to ASIC and advised ASIC that BDT was in breach of the Corps Act.
I pushed ASIC to compel BDT to comply.
ASIC refused to take any action.
I feel sorry for Kevin as ultimately he was simply acting under the advice and supervision of his Licensee, but clearly he did not know his product.
Of course the reality is that it is very difficult for a financial planner to truly know their products. Some people will disagree on this.
In this case one can assign blame to
ASIC,
the Licensee,
whatever law association the owner (Robert Daniels) of BDT belonged to, and
thet valuation association that one of the directors (a valuer) belonged to.
All failed to protect the public from what was going on.
So what happened to the Investment Managers in this case. Have they also been banned from practicing in the Financial Services sector?
no, it’s easier to blame the adviser. Only they have a direct duty of care (but also they are easy to blame, as they are unprotected). ASIC can’t touch product makers they fund ASIC’s bosses directly, the politicians.
Who put the product on the APL? If it was him, then I suppose that is the risk you take. As even the best planners lack the core skills to properly rate investments.
Thanks for sharing Mr Whitting. A real insight to how the system works. It is telling that with all the fuss over adviser fees – very little is mentioned about the responsibility the adviser has for their investment recommendations and strategic advice. The regulators will come after the adviser NOT the fund manager
So basically if he wasn’t a fraud his knowledge on investments was nowhere near up to standard and he shouldn’t have been practicing anyways.
Good riddance.
Reality- if you are so clean and knowledgeable why post in a false name, use your high moral ground and position to take advantage of the story and share with us all how good you are and who you represent if you can not or will not do this, then you are just another FoP which I believe you to be.
Please define FoP?