The Financial Planning Association’s controversial ‘side deal’ with the Industry Super Network on FOFA drew plenty of flack and is the Top Five List’s biggest fail for 2012.
1. Financial Planning Association/Industry Super Network deal
The news that rocked the financial planning industry the most, it seems, was the so-called “side deal” which was struck between the FPA and the ISN over some of the key components of the FOFA legislation.
A leaked document suggested the FPA would agree to the opt-in for a period of four years on the condition that the Government enshrined the term ‘financial planner’ in law.
Despite the Minister for Financial Services Bill Shorten starting to deliver on his promise of enshrining the term ‘financial planner/adviser’ in law, many key industry figures along with the Shadow Minister Mathias Cormann, criticised the FPA for failing to “hold the line” on opt-in.
2. Morrison Carr and Denis Cardakaris
Morrison Carr Financial Services made the news in July this year after the Australian Securities and Investments Commission (ASIC) cancelled both its financial services and credit licences, and permanently banned its sole director Denis Cardakaris from the industry.
ASIC’s investigation found Cardakaris transferred his business to Morrison Carr Financial Services from a previous licensee named Morisson Carr Australia.
In doing so he affected the ability of Morisson Carr Australia’s clients to pursue their claims.
ASIC Commissioner Peter Kell said the company also provided false information to its insurer, and expressed concerns that Cardakaris and Morrison Carr did not act in a fair and professional manner.
3. Banksia Securities
Another failure which made nation-wide news was that of Victorian debenture issuer Banksia, which collapsed in October owing around $660 million to retail investors, many of whom are over 55 years of age.
Being a debenture issuer, Banksia was not regulated by the Australian Prudential Regulation Authority, which could potentially leave many investors without full compensation.
In response to Banksia’s collapse, ASIC announced an internal task force to investigate the company’s failure.
4. Standard & Poor’s
After giving an “AAA” rating to a complex product which later failed, research house Standard & Poor’s (S&P) was ordered by the Federal Court to pay a third of the $16 million in damages incurred by the investors from the Bathurst Regional Council.
The Rembrandt notes were sold by Local Government Financial Services (LGFS) and banking group ABN Amro, which were found to be equally liable and will pay the remaining two thirds of the losses incurred.
S&P and ABN Amro will also pay close to $8 million each to LGFS for losses incurred when it sold a cache of Rembrandt notes to its parent company upon the downgrading of the notes by S&P.
5. Accountants (APES 230)
The Accounting Professional and Ethical Standards Board’s (APESB’s) proposed standard APES 230 was a source of much anguish for many accountants providing financial planning services.
APESB initially proposed the banning of all commissions – including risk and mortgage broking – and the elimination of asset-based fee arrangements.
However, it was recently announced that the implementation of the standard would permit the grandfathering of insurance and loan commissions for products recommended prior to 1 July 2013.
Despite the modifications, some accounting bodies continue to reject APES 230. Furthermore, the Institute of Public Accountants announced it would issue an alternative to APES 230, which would be “more consistent with the FOFA reforms”.
