The court case relates to poor financial advice provided by a former Westpac financial planner, Sudhir Sinha, in breach of the best interests duty and related obligations under the act, ASIC said in a statement.
ASIC said Westpac is directly liable for these breaches, which attracts a significant civil penalty, because the law imposes a specific liability on licensees for the breaches of their financial advisers.
The decision comes as a result of civil penalty proceedings brought by ASIC against Westpac in June 2018.
ASIC’s investigation revealed internal Westpac reviews, including an internal bank investigation in 2010, had raised concerns about Mr Sinha’s compliance history yet he continued to receive several ‘high achievement’ ratings from Westpac.
It was not until 2014 that Mr Sinha was dismissed by Westpac and March 2015 that Westpac reported Mr Sinha’s conduct to ASIC, the corporate regulator noted.
The trial took place before Justice Michael Wigney in April 2019, during which Westpac admitted that, as Mr Sinha’s responsible licensee, it had contravened the Corporations Act. The exact number of contraventions and penalty that should be imposed were contested by ASIC and Westpac.
In its decision, ASIC noted that the Court found Mr Sinha failed to act in the best interests of his clients, provided inappropriate financial advice, and failed to prioritise the interests of his clients, in four sample client files identified by the regulator.
ASIC said Westpac is directly responsible for the breaches of the best interests obligations by Mr Sinha under section 961K of the act.
“Westpac, as Mr Sinha’s responsible licensee, failed to properly monitor and supervise Mr Sinha for a period of time,” said ASIC deputy chair Daniel Crennan.
“This meant his customers were not provided with advice in their best interests. ASIC brought this case as a result of Westpac’s suspected contraventions of the law and failures to observe its duties. The court has found that Westpac contravened the law in this regard.”
In the judgment, Justice Wigney observed:
“The relationship between Westpac and Mr Sinha was structured so that Mr Sinha was able to share in the commissions and fees earned or derived when, as a result of his advice or recommendations, clients signed-up for financial products in which Westpac or associated companies had an interest. As will be seen, that rather cosy arrangement turned out to be fruitful for both Mr Sinha and Westpac, but not always for their clients.
…
“Unfortunately for four couples, it was subsequently discovered that the recommendations that Mr Sinha made, and the circumstances in which he made them, were deficient and defective, both as a matter of process and in substance. That should not have been a complete surprise to Westpac because Mr Sinha’s less than satisfactory conduct as a financial adviser had previously come to the attention of certain senior officers of Westpac as a result of various internal compliance reviews, audits or investigations.”
Further, ASIC said Justice Wigney found that Westpac ought reasonably to have known, from 1 July 2013, that there was a significant risk that Mr Sinha would not comply with the best interests obligations and that it failed to do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly, and to comply with financial services laws.
In doing so, it said Westpac also contravened sections 912A(1)(a) and (c) of the act.
Justice Wigney noted:
“Westpac also stood to gain from Mr Sinha’s actions. That perhaps explains why Mr Sinha was permitted to continue as Westpac’s representative and partner despite the serious compliance breaches which were exposed by the 2010 investigation. It is tolerably clear that, at least prior to the commencement of the FoFA reforms, some officers or employees at Westpac were either unable or unwilling to terminate the services of a representative who achieved high achievement ratings and was plainly proficient and successful at promoting the financial products of Westpac and its associates. It may readily be inferred that Westpac’s compliance systems and practices were less than rigorously applied, at least in Mr Sinha’s case.”
That must be the first time ever. Congrats to ASIC for actually imposing a penalty. First time in 20 years and it only took a Royal Commission, Storm Financial, 14 suicides of Financial Planners, significant red tape and compliance for all financial planners and 90% of Mum’s and Dad’s being unable to afford advice. Now what to do with $9.1 million dollars. How about reducing the ASIC Adviser levy for the 2020 year?
Clearly the court did not understand all the facts of the case. This (not very bright) Adviser was NOT sitting at Westpac doing whatever he wanted to do. His activity was being driven by the Practice Manager who was driven by the Regional Manager – to sell bank product and achieve budget and share of wallet target. No wonder there was bad advice.
The only individuals who are ever held accountable are advisers. There is no personal accountability for the licensee managers who train, incentivise, and intimidate weak and stupid advisers into doing the wrong thing. Breaking the law is seen as an acceptable business risk for managers in large product focused licensees, when the only sanction if caught is a corporate fine.
so these scumbag planners employed through the bank lauded for their great sales/inflows earning massive bonuses have completely stuffed this industry up for the ones that are self employed, hard working and care for our clients long term wealth.. You should hang your collective heads in shame
Interestingly, the best interest duty did not exist between 2010-2014 when this guy worked for Westpac. This prosecution is being applied retroactively. This should be a concern for every licensee and adviser.
It’s only a concern when you have been fleecing your customers.
And the Adviser gets a banning, Westpac a fine, however the Advisers direct managers who supported this behaviour were handsomely financially rewarded and have now moved onto new roles without any consequences.. [c[c[s[size=24px][/size]ize=24px][/size]olor=red][/color]olor=red][/color]
Agree, time for ASIC to consider taking administrative action against the direct managers who supported the poor advice practices who were handsomely financially rewarded..
What sanctions penalties will the FPA impose on their professional partner program member? There advertising states that as a professional partner you’re, “helping to shape the future of advice in Australia”. Please explain FPA just how have these managers in this situation shaped the future of advice?
And yet Westpac are still allowed to do, and still do do, all the things that this dodgy guy did. However they just do it under general advice.
Excellent news. The FPA has just found one of their guest speakers at next year’s Congress
Another cost to the shareholders whilst the individual managers continue to get paid more than most people earn in a lifetime.
“ASIC said Westpac is directly liable for these breaches, which attracts a significant civil penalty, because [b]the law imposes a specific liability on licensees for the breaches of their financial advisers[/b][b][/b][u][/u][u][/u]”
$9m for 1 adviser!!! , hardly a fair fine where all 4 clients compensated for whatever small medium loss occurred. Impact on clients lives small, where other organisations ruin people and get hardly a slap.
That was just the 4 samples. They guy would have been on a production line of maximising commissions etc They have already paid out over 12 mill compo to clients who complained , but there are many more, including an old friend of mine., and many who don’t even know they were screwed.
Given that the FASEA standards come into play shortly, it would be interesting to have a hypothetical IFA report showing the breaches against the standards.
Westpac are a financial contributor to FASEA are they not? and part of the partner program with the FPA are they not?
If this was a small AFSL, licence and livelihoods would be lost. When will we see an AFSL cancelled or suspended from these major perpetrators or even some executives taken to task………whats that?… (sound of crickets chirping)
“The relationship between Westpac and Mr Sinha was structured so that Mr Sinha was able to share in the commissions and fees earned or derived when, as a result of his advice or recommendations, clients signed-up for financial products in which Westpac or associated companies had an interest. As will be seen, that rather cosy arrangement turned out to be fruitful for both Mr Sinha and Westpac, but not always for their clients.”
Ummmmm…… clients went to Westpac and got sold a Westpac product? This is outrageous.
And how damaging was a Westpac product vs an alternative product?
Was the actual strategy wrong? or was it the product? Details please.
And industry super seem to do this day in, day out.
Makes a lot of sense.
Would be many many more in the same boat if ASIC looks at others not just the big four. Specially if it follows up on each person named during the RC