Wednesday, November 12, 2014

Timbercorp Hearing

The effects of recent major financial advice scandals have been catastrophic, resulting in consumers losing $5.7 billion in funds, losing their homes, losing their financial security in retirement.

I know first-hand in my electorate of Wills a number of constituents who have been affected adversely as result of poor advice or management by their financial advisor.

People have lost their homes, hundreds of thousands of dollars, their Self-Managed Super Funds, their share portfolios and their health etc because of poor advice and management.

Clients in share portfolios and managed investments schemes including Timbercorp and other agribusinesses, were not aware of the Agribusiness loans and in particular the loan conditions were either misrepresented or not disclosed. These loans effectively resulted in some clients being geared twice over.

Where gearing was disclosed clients were assured that the margin loans would never exceed 50%. In fact, the margin loans exceeded 200%, resulting in clients losing their entire share portfolio and other assets. Investors were explicitly assured their homes were safe.

In some instances clients were asked just to sign the rear page, which were not witnessed in their presence. Asset, liability and income details were often left blank or were completed after the client had signed the application (as they were told their office needed to finalise details on their behalf). Some of the loan documents recently obtained from Timbercorp Finance show that these details were never completed, or had liability details erased, or included incorrect client information.

Timbercorp management/maintenance/insurance fees and other agribusiness fees were disguised by being rolled into refinancing of debt.

Timbercorp increased the level of commission paid to Financial Advisors to promote their geared investments as the GFC began to impact.

A number of clients were pressured to increase their level of investment in Timbercorp even when the product was failing.

Undisclosed incentives were provided in relation to the recommending of Timbercorp products (for instance, the provision of overseas trips and possibly the granting of equity in Timbercorp companies). Given that Timbercorp were required to disclose all incentives they might pay to advisers distributing their products, this was an apparent breach of the requirements of the Corporations Act.

The significant omissions and potential fraud in respect to loan documentation should be investigated and all debts frozen and recovery action ceased by the respective creditors. ANZ, CBA, Macquarie Bank and other credit providers should explain their involvement and why such significant breaches of lending practices were permitted and should waive debts that would not have arisen but for their negligence.

The ANZ recently announced a record full year profit of $7.3 billion, up 15 per cent on a year ago, while the Commonwealth Bank posted a full-year cash profit of $8.7 billion, a record for an Australian lender. There is clearly the capacity for some debt forgiveness here. I remind the ANZ of ‘forgiveness’ taxpayers extended major financial institutions during the GFC when government action guaranteed the banks survival.

The relevant regulators, APRA and ASIC should independently investigate the arrangements and when fraud and other lending anomalies are established, they should explore grounds to award compensation to clients affected.

It is important for Australian investors to come forward with their experiences and evidence to inform the Parliament on further regulatory changes that may be necessary in this sector.

For its part, Labor will take to the next election a firm commitment to proceed with the broad thrust of its Future of Financial Advice reforms – important changes that the current government has dismantled.

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