Commonwealth Bank's submission to a Senate inquiry reads like a legal document designed to limit the bank's liability in a financial planning scandal by pinning it on financial adviser Don Nguyen and a "small number" of other advisers.
It says these "regrettable" events are "firmly" in the past and the bank has taken decisive action to investigate the quality of customer advice.
It says the Commonwealth Financial Planning Limited (CFPL) acknowledges that a "number" of customers suffered financial losses as a result of inappropriate advice they received from certain advisers. Affected customers have been offered compensation, it says.
The tone of the submission is far less apologetic than CBA chairman David Turner's recent admission to shareholders that "there's no excuse for giving bad advice, absolutely no excuse. We had the wrong people giving the advice and the business was structured wrongly, and remunerated wrongly, and the culture was wrong."
The problem with CBA's submission and $51 million compensation package is that it conducted manual file-by-file reviews of an estimated 7000 customer files and 1127 were compensated. The remaining customers either received "appropriate" advice or didn't suffer any loss from the "inappropriate advice" they had received. CBA provides financial advice to more than 300,000 retail customers.
A Fairfax Media investigation into the scandal revealed that the culture inside the division was high-octane "sales at any cost", its remuneration structure encouraged advisers to move clients from other products to CBA products and there was a lack of effective oversight as compliance was treated with contempt and nicknamed the "business prevention unit" and even in March 2010, when ASIC raided CBA, reviews of advisers were held up for months at a time. "The whole group were told not to email anything sensitive to each other as ASIC could request emails, so even in compliance I believe there was a culture of cover up," a former employee said.
The culture and lack of oversight by compliance raises questions about how CBA and the corporate regulator can believe that so few clients were given inappropriate advice and of those fewer still were compensated. It also raises questions about how many files of other financial planners who might have cut corners or offered inappropriate advice did not get reviewed.
It is a question that was raised by class action lawyers Maurice Blackburn in a submission to the inquiry. Maurice Blackburn and others including Financial Resolutions Australia believe the process was flawed because it relied on information and documents from CFPL's client files, "some of which were tainted with the questionable practices of Nguyen". In some cases the files were missing.
The Blanches, who were financially devastated and ended up on government assistance, illustrate a flaw in the compensation process.
They invested $260,000 with Nguyen and were told by the bank they were "moderate risk" investors, contradicting previous correspondence. They were offered $6777 in compensation. The letter included a table that claimed to be from the original documents prepared by Nguyen.
Once CFPL realised the Blanches had kept the original documents, one of its customer experience managers admitted to altering the Statement of Advice to "simplify things," according to minutes of a telephone conversation obtained by Fairfax Media. The bank then almost quadrupled their compensation to $25,000 and later to $95,000, without admitting liability. Seven planners were eventually banned: Chris Baker, Nguyen, Simon Langton, Anthony Awkar, Jane Duncan, Joe Chan and Rick Gillespie.
CBA's submission says it is "confident" its compensation process endorsed by ASIC and independent accounting experts correctly compensated customers by "correcting their position as if they had received appropriate advice".
But it air-brushes out the gory details of how long it took to pay the compensation or the pain or suffering caused by the delays. It focuses on what it has done to fix the problems, which is all good, but there is still the matter of approved product lists, the fact that some staff and managers are still at CBA or hold senior jobs at other institutions with similar sales-based type cultures, and the fact that the seven planners that ASIC banned were the ones handed on a platter to them by CBA rather than them finding out for themselves.