Despite the growing professionalism of the financial planning community, advisers are continuing to fall foul of the law. Samantha Walker investigates the fall from grace of respected planner Ian Pavletich which rocked the industry last year.
Despite the growing professionalism of the financial planning community, advisers are continuing to fall foul of the law. Samantha Walker investigates the fall from grace of respected planner Ian Pavletich which rocked the industry last year.
Almost a year ago to the day, a solicitor representing Sydney based financial plan-ner Ian Pavletich contacted the Commercial Crime Agency to inform them that his client wished to give himself up for fraud related offences.
On the following Friday morning at 11am, Ian William Pavletich, along with his legal representative, attended the Sydney Police Centre. During an interview, which was recorded on audio tape, Pavletich confessed to having falsely reported on the state of an investment portfolio of one of his clients, St George Bank chair-man Frank Conroy. Pavletich confessed he had spent funds from the portfolio to finance his gambling addiction. He told police he would fully co-operate with their investigation and gave them written permission to access his accounts.
Before the conclusion of the interview, Pavletich confirmed he had received treat-ment for his gambling addiction. He also apologised for his actions.
According to the court papers, Pavletich was driven “at least in part by a psycho-logical condition to which he is subject, namely a compulsive gambling impulse”. The court also acknowledged that his desire for money partly stemmed from “a de-sire to improve his lifestyle, in large measure, to impress and keep up with his then partner, a woman who apparently was somewhat more financially successful than himself”.
Following his confession, Paveltich pleaded guilty to the charges. In early Decem-ber, acting Judge Stewart sentenced Pavletich to a three and a half year gaol term, with a non parole period of two years for defrauding Conroy.
During his sentencing, Judge Stewart described Pavletich as “genuinely remorse-ful”. Pavletich had sought to repay the monies before he gave himself up to police. At the time of his sentencing, he was living in a boarding house “in modest cir-cumstances”, according to court papers. He took home between $900-1,000 per week as salary and was paying off his debts at $700 per week. Eleven days before presenting himself to the Commercial Crime Agency, Pavletich had written to Frank Conroy confessing his dishonest behaviour and seeking forgiveness for his breach of trust.
However, in imposing his sentence, Judge Stewart reasoned that he “must look at the message I would send to the financial community in particular, and the com-munity in general, if I were to do other than to impose a full-time custodial sen-tence …. People in positions of trust must realise that if they behave in the way this prisoner has done, they will be punished.”
The case of Ian Pavletich is a sore point for an industry which has been trying to build up an image of professionalism.
Pavletich was a well-known and successful financial planner. He was one of the star performers at Hillross Financial Services. The fact that he had someone of Frank Conroy’s calibre as a client gives a fair idea of his standing in the industry.
Pavletich had been in the financial services industry for over a decade. He was a member of the Financial Planning Association (FPA) and sat on several of its boards (including professional and ethical standards).
He was also a regular contributor to Money Management and was, in fact, a finalist in Money Management’s Financial Planner of the Year Award in 1996.
Pavletich is by no means the only example of an adviser falling foul of the law. In fact, he is just one of the 17 securities advisers the Australian Securities and In-vestments Commission has banned this financial year. There have been other frauds committed by financial planners involving greater sums of money than the amount defrauded in this case (just under $350,000). Last June, former Financial Wisdom adviser Stuart Forsythe was gaoled for six years by the Newcastle District Court for defrauding 10 of his clients, eight of them elderly, of about $1.4 million.
Also last year, three former RetireInvest planners, based in Adelaide, were banned by ASIC following the misappropriation of about $17 million. Two hundred and fifty RetireInvest clients were affected.
What is most interesting about the Pavletich case is the fact that no-one, not even this publication, saw it coming. Over the years, he also made significant contribu-tions to the community at large. He worked with the Community Youth Support Scheme on its management committee. He also volunteered his services on holiday camps catering for underprivileged and disadvantaged children, and organised free sporting activities for the North Rocks Deaf and Blind School for two years.
The details surrounding Pavletich’s fall from grace are sobering, but important for the industry to discuss, says Peter Bobbin, partner at law firm The Argyle Partner-ship.
Bobbin argues that the Pavletich case is yet another symptom of a disease within the financial planning community. The disease does not so much revolve around an abundance of dishonest planners, but the reluctance of the industry to openly dis-cuss the issues arising from these occurrences.
“The financial planning industry is not yet mature enough to talk about these cases. If they were, there’d be a lot more said on it. It’s not until the industry talks openly about them that the profession will mature.”
Bobbin believes there will always be a level of fraudulent behaviour in an industry where people have access to other people’s money. He says lawyers are also in the same boat as financial planners.
Hillross Financial Services managing director Jonathan Harrison argues that while the public should know cases like this do happen, it is important not to sensation-alise them.
“It’s a balance thing. The public needs to understand this happens, but if you sen-sationalise it, people think there’s too much risk,” he says.
Harrison says that Hillross’ compliance regime is stringent. Unfortunately, it is al-most impossible in cases such as the Pavletich case, where advisers have a power of attorney over their client’s financial dealings, to prevent the fraud from occur-ring, he says.
“When an evil thought penetrates someone’s mind, at what point can you detect it? It’s always going to be after the crime.”
At no point in the sentencing of Ian Pavletich were the compliance systems of Hill-ross Financial Services brought into question. Nonetheless, Harrison says the group has “taken the additional step” since this case of requiring advisers to inform the group of any power of attorney-type structures in place.
It is important, he says, that dealer groups “have control systems in place so that people realise they’re going to get caught” if they do commit fraud.
“You can’t get into a situation where someone puts their hand in the till and then apologises. This will not be forgiven. People need to understand that if they’re caught, there’ll be no mercy shown.”
The case of Ian Pavletich is not the first of its kind, nor will it be the last. The fact that Pavletich was so well regarded in the industry proves just how difficult it is for to detect fradulent behaviour, let alone police it.
Yet it is imperative, Harrison says, for the industry to try to ensure that the client is protected from fraud.
“The key thing is to remain vigilant,” he says.
According to the transcript of the NSW District Court, Pavletich began managing a portfolio for St George chairman Frank Conroy worth about $3 million in 1993. Part of the portfolio was a Macquarie Treasury Plus Fund worth $577,000. Pav-letich opened a separate account with the Macquarie Trust, according to court pa-pers, “for the purpose of fraudulently transferring funds from Mr Conroy’s Trust to his own account. To facilitate the movement of monies, he would fax instructions to Macquarie Investments under a discretionary authority to invest money o
