Westpac has admitted its system for monitoring its salaried advisers failed as the royal commission heard evidence from an aggrieved customer of the bank who lost her family home.
The royal commission heard its first evidence from a customer of the bank yesterday, with registered nurse and Westpac client Jacqueline McDowall stepping into the witness box.
Ms McDowall, whose husband is a truck driver, approached Westpac in 2015 with a plan to buy a bed & breakfast as part of her retirement plan.
On the advice of Westpac/BT planner Krish Mahadevan, who still works at the bank, the McDowalls sold their family home and transferred their $200,000 combined superannuation balance into an SMSF.
The couple also took out life, TPD and income protection insurance costing them $27,000 per year – netting Mr Mahadevan $16,000 in upfront commissions – on the assurance they would be able to borrow “up to $2 million” to finance the B&B.
However, after finding an appropriate property in Victoria to purchase within the newly established SMSF (which was incurring administration fees from Heffron), the McDowalls discovered they would only be able to borrow $200,000.
After rejecting two compensation offers from Westpac, the couple accepted an FOS settlement of just over $100,000. They are currently renting in the Northern Territory where Ms McDowall is once again working as a registered nurse.
The next witness was BT Financial Advice general manager Michael Wright, who was grilled about Westpac’s monitoring of its financial advisers.
Counsel assisting Rowena Orr asked Mr Wright about Mr Mahadevan and another BT planner, Andrew Smith, who had also provided poor advice.
Mr Wright described the advice provided to the McDowalls as “unviable” and “bad”, but he stopped short of criticising the insurance arrangements (although he admitted they should not have been put in place before the B&B was purchased).
Ms Orr looked in detail at BT’s ‘consequence management’ policy, which works similarly to demerit points on a driver's licence.
Westpac planners start with 60 points, and they lose 10 points for a client file that ‘needs improvement’ and 3 points for a file that is rated ‘qualified’.
Ten points are lost if there is a complaint against a Westpac adviser and it results in compensation of less than $25,000; 15 points are lost if there is a complaint that leads to compensation of more than $25,000.
Advisers with 30 or more points are deemed a ‘normal’ risk, 15-30 points means they need ‘oversight’ and 0-15 points equates to ‘mandated improvement’ and loss of bonus.
The planners have one audit a year, during which four of their client files are reviewed; importantly, demerit points are wiped clean every six months.
Ms Orr put it to Mr Wright that the system had “failed” because an adviser could receive sub-par results on the the majority of the files reviewed and still retain their bonus.
BT Financial Advice has implemented changes to the system in the past three months that will move to monthly reviews, Mr Wright said – and the demerits points will be wiped clean every two years (rather than every six months).
Ms Orr asked him why it had taken “so long” to implement the changes.
“I think the reality is we’ve relied way too much on the system to tell us [what was wrong],” Mr Wright said.
You can follow the royal commission hearings at a live blog at InvestorDaily's sister publication ifa.