The fifth period (19 June 2015 to 30 June 2016)
287 On 19 June 2015, Ms Nugent sent an email to Mr Whereat in relation to "Carrington - discussion with MAC" (CB tab 2126). I infer that the reference to MAC is to Marie-Aimée Collins. Ms Nugent reported on a discussion she had had with Ms Collins that morning. Ms Nugent's email set out a series of concerns with Carrington and Mr Doyle relating to lack of engagement, lack of resources and lack of consequence. Her comments included: "Despite [Philip Volk's] process suggestions, JD [i.e. John Doyle] has made it clear he will not change his approach - the team need to make the changes around him to make this initiative work". Ms Nugent outlined a number of suggestions, including that RI put Mr Doyle "on notice of Termination (even if we can't yet issue it)".
288 On 22 June 2015, Mr Whereat sent an email to Mr Doyle (CB tab 2131) and a letter giving notice of termination (CB tab 2132). The letter, which was headed "Notice of Termination", was in the following terms:
I formally give notice that Rl Advice Group is exercising its rights pursuant to clause 16.7 of the Principal Authorised Representative Agreements in respect of The Carrington Corporation Pty Ltd to terminate those agreements. I note that termination pursuant to that clause takes effect at the end of a period of six months from the giving of this notice, being 21 December 2015, or at such other time as agreed with you. If it is to our mutual interests to shorten the notice period, we are happy to explore with you whether we can agree an alternative date of termination sooner than six months hence. Again, please contact me to discuss how we can best facilitate an orderly transition out of the business for you.
It is important that we remind you that by giving this notice you are not absolved of any of your duties under either of the Principal Authorised Representative Agreements or your Individual Representative Deed. All of those obligations remain in force during the notice period, and many of the obligations, including in relation to confidential information, continue beyond the termination of those Agreements and Deed.
We refer you to the Agreements and Deed for full details of your ongoing obligations during the period of notice and after effective termination, but note in particular that you must:
a) Act at all times in accordance with RI's procedures and guidelines, and comply with all reasonable directions given to you by RI;
b) Maintain strict confidentiality over the details of clients and client flies, and not use or disclose that information, or any other confidential information, for any purpose other than in the specific performance of your duties as an Authorised Representative of RI;
c) Make available to RI at any reasonable time the client files, accounts, books and records of the business; and
d) Act efficiently, honestly and fairly, and in full compliance with all applicable laws and regulations, in the delivery of financial services to clients.
We trust that you will faithfully and diligently comply with all of your obligations under the Agreement, Deed, and at law. Naturally, RI takes the protection of its business interests seriously and will take all steps necessary to ensure that those interests, and the interests of clients, are fully protected.
289 Clause 16.7 of the Principal Authorised Representative Agreement between RI and Carrington (CB tab 707) gave RI the right to terminate the agreement by giving six months' written notice of termination to Carrington. This right was additional to the other rights of termination conferred on RI by the agreement.
290 Mr Whereat's email of 22 June 2015 to Mr Doyle was in the following terms:
Further to our recent meeting and subsequent discussion concerning the findings from your 2nd Advice Assurance Review, I wish to reiterate the importance of making the necessary changes to your advice process and broader business. I understand the first steps to achieve this outcome have already commenced, through an initial meeting with the key personnel from Planlogic. We will continue to work with you and closely monitor the progress, to ensure successful and timely completion.
With respect to the Advice Assurance Review, I am aware that you have participated in a conference call with Peter Ornsby and Adrian Caspar to discuss the findings. Specifically, Peter and Adrian disclosed a number of issues relating to the five additional files that have been reviewed. The review reflected systemic issues in relation to file maintenance, which is concerning and reaffirms many of the findings from your 1st review, conducted earlier this year. By close of business 23rd June, Peter will ring you to schedule a meeting in your office, to outline the remediation that must be completed for these five files. We will now broaden the scope of our review to consider all advice that has been provided by Carrington Financial Services, since joining RI in 2013. Peter will discuss the logistics, when you meet face to face.
In the meantime, all SOA's will need to continue to be vetted, prior to being issued to new clients. In addition, all ROA's will be required to follow the same process, before being issued to existing clients.
John, in our meeting on the 11th June, I mentioned the importance of working together to make the necessary process changes and that it was non-negotiable from our aspect. After careful consideration, I confirm it is our intention to terminate your Principal Authorised Representative Agreement, with the notice period being 180 days, per the attached notice. Should the process changes be successfully implemented, all remediation completed and you pass an Advice Assurance review, we will revoke our notice to terminate, upon agreement with you.
I will call you in a few days to discuss further. In the meantime, should you wish to discuss further, please do not hesitate to contact me.
(Emphasis in original.)
291 I note the following matters in relation to the above email:
(a) The email indicated that RI would conduct a review of all advice that had been provided by Carrington since joining RI in 2013.
(b) Mr Doyle remained subject to the pre-vetting program. As discussed above, this required all proposed advice documents to be submitted for approval. Although Mr Whereat referred to SOAs for "new clients" requiring vetting and ROAs for "existing clients" requiring vetting, I do not understand those statements to detract from the proposition that all proposed advice documents were required to be submitted for approval.
(c) In the email, Mr Whereat offered to revoke the notice of termination in the event that process changes were successfully implemented.
292 Mr Whereat gives evidence in his affidavit that the reason that RI terminated Carrington's authority on a 'without cause' basis included that:
(a) RI needed Mr Doyle to continue to work collaboratively to clear outstanding statements of advice;
(b) As Mr Doyle operated as a single adviser practice, documentation processes needed to be implemented through Planlogic to protect Carrington's clients' best interests;
(c) RI was actively seeking to assist Mr Doyle to sell the Carrington business and it was thought that implementing documentation processes through Planlogic would make the business more attractive to potential buyers.
293 On 3 July 2015, Mr Volk sent an email to Ms Collins and Ms Nugent (copied to Mr Whereat and Mr Ornsby) (CB tab 2215 and 2216). The email outlined a project to improve Carrington's processes. In the email, Mr Volk stated he continued "to have serious reservations about Carrington's ability to implement", and set out details of those concerns.
294 On 6 July 2015, Ms Marfatia sent an email to Mr Ornsby attaching a list of clients and advice given or services provided by Carrington since July 2013 (CB tab 2230). The attached spreadsheet (CB tab 2228) included the names of the clients and details, such as the appointment date, the adviser (i.e. Mr Doyle), whether superannuation advice was given, whether SMSF advice was given, whether insurance advice was given, and whether an SOA had been presented. It was apparent from this information that Mr Doyle had provided many advice documents to clients during the period between 8 May 2013 and 25 August 2014 (being the period he was on pre-vetting for all practice areas). This indicated, to someone with knowledge of the small number of advice documents submitted by Mr Doyle for pre-vetting, that Mr Doyle had circumvented the pre-vetting program.
295 Mr Ornsby gives evidence in his affidavit that it was not until 6 July 2015 that he became aware that Mr Doyle had been providing advice to clients outside of RI's vetting requirements. I accept this evidence, which was maintained during cross-examination.
296 On 7 July 2015, Ms Nugent sent an email to Mr Whereat (copied to Ms Collins and Mr Volk) (CB tab 2233). The email stated that Ms Marfatia (of Carrington) had called to advise that "680 clients have been seen by JD [i.e. John Doyle] whilst under the RI Licence, receiving some form of review or advice, with documentation". The email stated that this was "at least 2/3 greater than the number originally identified".
297 Mr Whereat gives evidence in his affidavit that this was the first time that he became aware that Mr Doyle may have provided advice to a large number of clients outside of the RI vetting process. I accept this evidence, which was maintained during cross-examination.
298 On 20 July 2015, a meeting of the Consequence Management Committee took place (CB tab 2269). Mr Whereat attended the meeting. In relation to Mr Doyle, the minutes of the meeting recorded that a notice under s 912C of the Corporations Act had been received from ASIC on 24 June 2015, requesting information about clients of the practice between 1 January 2013 and 31 May 2015, and that the information had been sent to ASIC on 14 July 2015. The minutes also recorded:
Darren Whereat also advised that the adviser has been given a termination notice with a six-month timeframe that requires him to agree to numerous process changes in his business or leave RI. They are:
• Outsourcing paraplanning to Plan Logic (Phil Volk);
• Plan Logic to remap the advice process to deal with differences identified in past audits (three-month process);
• External advice firm (TBA) to be engaged to compile a view on whether there has been client detriment in the advice received since 1 January 2013, against the list of clients given to ASIC.
The adviser has been accommodating in making these changes to processes.
299 On or around 28 July 2015, ANZ's Advice Assurance team reviewed a further six Carrington client files (CB tab 2286) (the Third Advice Assurance Review). The results of this review identified similar issues to those identified in the First and Second Advice Assurance Reviews.
300 On 13 August 2015, an email exchange took place between Mr Whereat and Mr Ornsby in relation to Carrington (CB tab 2333). Mr Whereat asked Mr Ornsby to provide details in response to a number of topics. Mr Ornsby responded to Mr Whereat's email, providing details as requested by inserting them into Mr Whereat's email under the topics he had identified. Under the heading "Summary of issue …", Mr Ornsby stated in part:
The business was placed on pre-vet and remained there until late 2014. At that time it was identified that Carrington's had not been sending advice documents through to pre-vet as required
During cross-examination, Mr Ornsby said that this was a reference to another Carrington adviser, Mr Intherarasa, rather than Mr Doyle, not sending advice documents to pre-vetting as required. I accept that evidence, which Mr Ornsby maintained under questioning.
301 Later in the email, Mr Ornsby indicated that, since the Second Advice Assurance Review, a further group of Carrington files had been sent to the Advice Capability and Assurance team (the Third Advice Assurance Review). Mr Ornsby stated:
These files were reviewed in an effort to determine whether client detriment was a concern for the business. The results of this review are currently being assessed by Melinda Toomey in Corporate & Advice. This review will lead to an assessment as to whether a breach notice in regards to the conduct of Carringtons will be submitted to ASIC.
302 Mr Ornsby's comments also included:
In the [submission] of 10 July to ASIC, we were able to establish that Carringtons had provided advice to 777 clients post joining our business. Carringtons are not thorough users of Xplan, so we also had to review Johns [i.e. John Doyle's] diary as another source of information. We are now working through the client files to establish the categories of advice provided to clients by the business. That is considering clients who may have advice related to Defined benefits, SMSF's, property etc.
303 Mr Ornsby outlined the following mitigation steps that had been taken:
To mitigate risk, all advice documents must be submitted to the pre-vet team for review. Prior to be submitted to pre-vet, all advice must follow the new process and procedures implemented by Plan Logic. (Subsidiary of RI Advice Surrey Hills). This process considers a new fact Find for each clients and a new SoA for each client. Weekly meetings are held with our local Practice manager, and our Regional manager is also supporting the implementation and ongoing reporting of the project.
(Errors in original.)
304 On 18 August 2015, a meeting of the Consequence Management Committee took place (CB tab 2339). Mr Whereat attended. In relation to Mr Doyle, the minutes recorded:
Darren Whereat advised that the Licensee [i.e. RI] is expecting to submit this as a reportable breach to ASIC this week. A full remediation plan is being drafted and is to be signed off by 1st and 2nd Line Risk and Legal.
305 On 25 August 2015, Mr Whereat sent a letter to Mr Doyle suspending his authorisation (subject to certain exceptions) (CB tab 2381). The letter was in the following terms:
We notify you that, in accordance with clause 8 of your Individual Representative Deed with RI Advice Group Pty Ltd (RI Advice) dated 8 May 2013 (Individual Representative Deed). We suspend your appointment under the Individual Representative Deed in accordance with the terms of this letter, effective immediately. We do so in reliance upon breaches of the following sections of the Corporations Act which were evident in some of the 16 files we have reviewed during the period 6 February 2015 to 28 July 2015:
(a) Section 961B - best interest duty;
(b) Section 946A - obligation to give a Statement of Advice to retail clients;
(c) Section 947D - requirement to provide additional information on replacement of one product with another;
(d) Section 1012A -obligation to give a Product Disclosure Statement when providing personal advice which recommends a particular financial product;
(e) Section 962G or 962S - obligation to give a Fee Disclosure Statement to retail clients; and
(f) Section 941B - obligation to provide a Financial Services Guide when providing a financial service to a retail client.
During your period of suspension you cannot perform any act as an authorised representative of ours except under our instruction to:
(a) identify further breaches of the Corporations Act, all other relevant acts, regulations, orders and laws, [RI] Advice's Manual (as that word is defined in the Individual Representative Deed), and any guide RI Advice publishes; and
(b) remediate clients who have been affected by such breaches to our reasonable satisfaction. We will provide you with our formal remediation plan shortly. We expect your full compliance with that plan.
You are only able to provide advice to existing clients which is not required as part of the remediation plan on the following basis:
(a) the client approaches you or one of your advisers seeking advice;
[(b)] you follow RI Advice's policies and procedure; and
[(c)] such advice is pre-vetted through RI Advice's Advice Assurance Team.
If you would like to discuss this letter or would like copies of any of RI Advice's policies and procedures, please contact Peter Ornsby on [number omitted].
306 As indicated in the last part of the above letter, Mr Doyle was still permitted to provide advice to existing clients in certain circumstances as set out in the letter. The letter was, therefore, a partial (rather than a complete) suspension of Mr Doyle's authorisation.
307 Mr Whereat gives evidence in his affidavit that he and Mr Ornsby discussed this and determined that this approach was the most effective way in which RI could carry out its remediation program of Carrington, including by directing Mr Doyle to remediate certain files and work with certain clients that RI had identified required remediation. During cross-examination, Mr Whereat gave the following evidence in relation to the decision to partially suspend Mr Doyle:
And you could have just suspended him completely at that stage, couldn't you, under the terms of his agreement?---We suspended him to only react to his - to existing clients because they were in the remediation program.
You could have stopped him working completely, not seeing any clients?---So we could have terminated him. The ramifications of that from a client aspect is the clients were - had a longstanding relationship with Carrington. The reality is that we were going through a remediation program. The needs if and when they - - -
I just asked you the question that you could have terminated him. You could have terminated him at that stage because you knew that he had been circumventing pre-vetting and that was a breach of the obligations he had under his deed of authorisation. So you could have terminated him?---So we could have.
Or suspended him?---We could have - we did suspend him.
Not - partially suspended him?---Well, again, we are quarantining the issue - the size of issue. If you terminate somebody, you've got 700 clients there who have had a longstanding relationship with the adviser, who cannot get advice should those needs arise.
And you think it's better for them to be exposed to an adviser who has high issues in three audits?---So definitely paper-based issues. I agree with what you're saying. The quality of the advice, as we were going through this, again, I refer back to my earlier comments that there was many clients that had longstanding relationships with Carrington. The advice was deemed to be - across those areas deemed to be or couldn't be concluded that it was inappropriate and so our belief at that stage was to quarantine the issue, work with Carrington on the sale and build out as much of the remediation as we could.
308 On 25 August 2015, Ms Nugent sent an email to Mr Whereat and Mr Ornsby (copied to Ms Collins) in relation to Carrington (CB tab 2382). Ms Nugent referred to a meeting that had taken place that day and stated that she wanted to be clear on the role that Mr Whereat and Mr Ornsby wanted her and Ms Collins to play. Ms Nugent stated:
I'm concerned about you granting John [Doyle] the ability to continue to see even existing clients for NB, given the risks associated with his continual behaviour around scant file notes, incomplete PFP's and lack of commitment/ability in the practice to use X Plan.
FYI, John's diary has been reviewed and he has met with 166 clients between 1/8 and 24/08.
(Emphasis in original.)
The reference to "NB" would appear to be to new business.
309 On 31 August 2015, Mr Whereat sent a letter to ASIC giving notice of a potentially significant breach under s 912D of the Corporations Act (CB tabs 2403, 2404). The letter referred to three file reviews having been conducted. The letter stated that the three file reviews had identified potential breaches of a number of provisions of the Corporations Act (which were specified). The letter outlined steps that had been taken by RI in response to the issues identified in the letter.
310 On 31 August 2015 and 7 September 2015, Mr Caspar (of ANZ) sent emails to Mr Ornsby (and, in the latter case, also Mr Whereat) to the effect that he had uncovered recent instances of Mr Doyle providing further advice to clients without having submitted the advice document for vetting (CB tabs 2405, 2422).
311 On 6 September 2015, Mr Doyle sent an email to Mr Whereat and Mr Ornsby complaining about their recent decision not to allow his business to write "New Business" (CB tab 2421).
312 In or about September 2015, RI and ANZ established a working group, known internally as the Carrington Remediation WIP forum, to specifically consider the ongoing investigation and remediation involving Mr Doyle and Carrington (Carrington Working Group). The group, which included RI and ANZ representatives, met regularly to keep track of the progress. Mr Ornsby was the primary RI contact for the ongoing remediation of Carrington's clients and the "Business Action Owner" of the working group. Mr Whereat also attended meetings of the working group.
313 From about October 2015, Mr Whereat and Mr Ornsby took an active role in liaising with Mr Doyle in relation to the sale of Carrington. Prior to his departure in February 2015, Mr Hyland had handled much of the earlier negotiations. By about October 2015, the consortium of current and former Carrington staff who had been engaged in negotiations for over a year were no longer interested in purchasing the business (many of them having resigned from the business in the preceding months).
314 On 14 October 2015, Mr Whereat received an email from Ms Nugent noting that she had a meeting with Richard McLean (of Frontier) who expressed interest in purchasing Carrington (CB tab 2503). Ms Nugent requested that Mr Whereat meet with Mr McLean in Melbourne to ascertain "whether there is anything we could do to support the transaction, including moving Frontier into the RI group from FSP". The reference to FSP was a reference to Financial Services Partners Pty Ltd, a member of the Aligned Dealer Group of which Mr McLean's business, Frontier, was an authorised representative. Mr McLean had a similar client base to Carrington. Mr Doyle knew Mr McLean as both had worked for a long time within the financial services industry. Mr Whereat subsequently met with Mr McLean. From that point on, the day-to-day dealings in relation to the brokering and ultimate sale were handled by Ms Nugent and Mr Peters.
315 On 26 October 2015, Mr Whereat received an email from Brent Van Der Wel (Senior Paraplanner, Carrington) requesting an approval for Carrington to use the Strategy Retirement Fund for its existing clients. Mr Van Der Wel noted that Carrington had "a number of clients who have been retained in Strategy as it was not cost effective to transfer them into the Voyage-badged version of this product". Mr Whereat subsequently explained to Mr Van Der Wel, by way of email dated 27 October 2015, the standard waiver process for such requests, including the requirement to make a formal waiver request with ANZ's Chief Investment Officer and retaining all supporting evidence on Xplan (CB tab 2532).
316 Mr Doyle responded to Mr Whereat's email to Mr Van Der Wel later on 27 October 2015, in which he stated:
This is the opposite to what we discussed only last Friday.
Why the change?,
We have many many clients with Strategy & it is very time consuming to have to apply for a waiver each time we are completing a Review for one of our clients.
We have always & continue to act in the "Best Interests" of our clients & this individual requirement of "Your Own Anz Product" is strange to say the least.
317 Mr Whereat subsequently exchanged emails with Mr Doyle and Mr Van Der Wel in relation to the waiver request, in which Mr Whereat requested that Carrington submit a few waiver requests and supporting documentation initially, prior to the product being considered for a blanket waiver.
318 On 28 October 2015, a meeting took place of the Carrington Working Group (CB tab 2543). The chair of the meeting was Jodie Hanson and the attendees were Mr Whereat, Ms Rockliff, Ms Salerno and Matt Ellsmore. The minutes of the meeting are on ANZ letterhead. Item 1 was an update on adviser activity and recorded that a meeting had taken place that week between Mr Doyle and Mr Whereat. It was recorded that Mr Doyle had been advised that "he must remain in the business until the files are remediated". In section 2 of the minutes, there is reference to 160 clients being "in structured products".
319 Under the heading "Actions" in relation to this matter, the minutes recorded: "Need to understand when these clients entered into these products and if any were advised to do so under the RI license".
320 On 30 October 2015, Mr Doyle sent an email to Mr Ornsby in relation to structured products (CB tab 2556). In summary, Mr Doyle sought to make a case for being permitted to recommend structured products. Mr Ornsby responded that he would have a meeting with Amelia (a reference to Amelia Kennedy of ANZ) "to work through potential solutions".
321 On 8 November 2015, Ms Kennedy of ANZ sent an email to Mr Ornsby in relation to Carrington and structured products (CB tab 2577). Ms Kennedy's email stated:
Structured Products have received much attention from the regulator especially as to how and why they are provided to retail customers.
ASIC released a report early last year around Complex products, Report 384 (http://www.asic.gov.au/regulatory-resources/find-a-document/reports/rep-384-regulatingcomplex-products/) which focuses on the importance of [clients] demonstrating their understanding of these complex products. We agree that it is difficult, if not impossible for the average retail customer to fully comprehend and grasp/[assess] the risks associated with such products. This is particularly difficult when clients may be attracted to the past returns.
There are unfortunately no similar [comparisons] for the structured products you have mentioned (Mason Stevens, InStreet and Macquarie Flexi100) as the only other equivalents would be other structured products. We don't have structured products on the APL [approved product list] as we don't believe the rewards in this space are aligned to the risk having to be taken by the client, the adviser and the AFSL. This will be difficult for advisers and clients as we understand that at face value the potential returns can appear very attractive.
Assuming FIIG is used for direct bond purchases the closest equivalent funds would be those with corporate debt exposure. The funds on the APL we would recommend include Macquarie Income Opportunities and CFS Global Credit Income.
(Emphasis added.)
322 On 11 November 2015, Mr Ornsby forwarded the above email to Carrington with instructions as to how to deal with clients already in structured products (CB tab 2592). Then, on 12 November 2015, Mr Whereat forwarded that email chain to Mr Doyle. Mr Whereat's email stated:
See email below from Peter [Ornsby] to Brent [Van Der Wel] outlining how to deal with structured products for existing clients. No further or new investments are to be made into any Structured Product as they are not on our APL [Approved Product List] as Amelia [Kennedy] outlines below.
323 On 12 November 2015, a meeting of the Carrington Working Group took place (CB tab 2588). The meeting was chaired by Mr Ellsmore. The participants included Mr Whereat and Mr Ornsby. There was discussion about extending the date of termination of Carrington's authority (the notice of termination dated 22 June 2015 had specified 21 December 2015 as the termination date). The minutes recorded:
• Discussion covered that extension of termination is in part due to the fact that investigations are continuing and that retaining Carrington Corporate Authorisation will assist the Licensee to be able to effectively implement its remediation activities. It is expected that by retaining Carrington as a Corporate AR, this will help remove potential delays and potentially lead to better outcomes.
• It was important to ensure that should RI determine that John's AR status is no longer appropriate to hold, that it is able to rescind this in a timely and effective manner. (Noting that a meeting is to occur between John, RI CEO, Line2 Risk and the Advice Assurance to discuss aspects relating to the files.
324 On 19 November 2015, Mr Whereat attended the monthly Consequence Management Committee meeting. As recorded in the minutes, the matter of Mr Doyle was closed given it was being tracked at the Incident Review Forum and Risk Compliance and Board Committee meetings.
325 On or about 19 November 2015, RI and Carrington entered into a deed of extension by which the termination date of Carrington's authority was extended from 21 December 2015 to 30 June 2016 (CB tab 2607). RI was permitted to terminate Carrington's authority before 30 June 2016 by providing 60 days' written notice. Mr Whereat gives evidence that, given the ongoing nature of RI's remediation, he formed the view that the termination of Mr Doyle's and Carrington's authorisations with RI ought to be extended to ensure ANZ and RI retained access to all client files and personnel within Carrington, to ensure those clients could be investigated and remediated as appropriate. I accept that Mr Whereat formed that view at the time.
326 On 29 January 2016, Mr Ornsby sent a letter to Mr Doyle stating that he (Mr Ornsby) had been advised that Mr Doyle had recently met with a new client, to whom he intended to provide financial product advice under RI's AFSL (CB tab 2734). Mr Ornsby reiterated that under the notice of suspension dated 25 August 2015, Mr Doyle was suspended from providing any financial product advice to new clients, and sought an explanation for Mr Doyle's contravention of the notice of suspension. Mr Doyle responded by email on 3 February 2016, stating that he had had discussions with "these people" for over five years (CB tab 2761).
327 On 2 February 2016, RI produced a draft report headed "Remediation capability - Investigation report" in relation to Carrington (CB tab 2738). The draft report indicated that approximately 170 clients had invested in structured products, including the Instreet and Macquarie Products.
328 On 4 February 2016, Mr Whereat sent a letter to Mr Doyle regarding products not on RI's Approved Product List (CB tab 2745). Mr Whereat's letter stated that he understood that, for some of Mr Doyle's clients who had invested in non-Approved Product List products, "advice was provided under RI Advice's AFSL without obtaining prior approval from the CIO". Mr Whereat stated that "[s]uch conduct is a breach of your Principal Authorised Representative Agreement with us". Mr Whereat stated: "Please note that your advisers cannot provide advice to any clients regarding new investments in the Non-APL Products" (emphasis in original).
329 In his CEO Report of February 2016, Mr Whereat outlined the intended imminent sale of Carrington, and the interplay between the proposed sale and the ongoing remediation of Carrington's clients (CB tab 2853). His report included:
Practice is now subject to immediate remediation program. RI Management are also engaging businesses expressing interest to acquire the Carrington practice. …
Carrington has employed a business broker for the sale of the [assets] with a FSP [Financial Services Partners Pty Ltd] business expressing [interest] in buying. Intent agreements expected to be complete by 31 march. It is expected that the business will remain with RI Advice group
330 In mid-March 2016, Mr Doyle met with Frontier to discuss a potential sale of the business to Frontier (CB tab 2816).
331 On 5 April 2016, Johan Werle of ANZ prepared a report headed "ART Targeted Review Outcome Report" (CB tab 2840). The report focussed on clients of Carrington who had invested in the Instreet Products. The report stated in part:
In June 2013, soon after Carrington was licensed by RI, CIO refused to provide a waiver for Instreet (structured) products, on the basis of its complexity and inherent risks. … Despite this, a new series of this investment, commencing in June 2014 was recommended by Carrington FS to a number of clients. These investments were not authorised and not appropriate. The initial targeted review therefore focused on 21 clients that were identified holding this investment.
The Instreet investment is a geared structured investment, in the shape of a 3 year Deferred Purchase Agreement. The current investment series, commenced in June 2014 and maturing in June 2017 have exposure to the ASX/S&P 200 price Index (Series 36) and the Euro Stoxx 50 price index (Series 38).
The investor is required to pay a 'finance cost' of 7.35% per annum upfront, as well as a 1% entry fee. The investor will receive a fixed 4% coupon after year 1 and year 2. The final payment at the end of year 3, if any, is dependent on the performance of the underlying index. The investor has an annual 'walk away' option, but will forfeit the 4% coupon in that case.
Given the performance of the markets over the past two years, (the indices for both investments are down around 7% from inception in 2014, whereas the so-called participation rate has been negatively affected by the higher volatility of recent times) investors are unlikely to make a positive return from their current (and inappropriate) Instreet investments.
332 The report provided details of proposed remediation in respect of 21 clients who had invested in the Instreet Products. It was recommended that clients exercise the option to 'walk away' from the investment. To do so, they needed to give notice before 15 May 2016.
333 On or about 18 April 2016, Mr Whereat ceased his role as Chief Executive Officer of RI and assumed the role of General Manager, Aligned Licensees and Advice Standards at ANZ.
334 On 12 May 2016, Mr Whereat and Mr Ornsby held a meeting with Mr Doyle. The evidence includes Mr Ornsby's file note of the meeting in an email of 19 May 2016 (CB tab 3091). Mr Whereat participated in the meeting by telephone. As recorded in the file note, Mr Whereat asked Mr Doyle about progress regarding the sale of his business. Mr Whereat reiterated that Mr Doyle's termination as an adviser would take effect on 30 June 2016. Mr Ornsby informed Mr Doyle that RI had identified 21 cases where clients had been placed on the Instreet Product, which had not been approved by RI. Mr Ornsby stated that a "client detriment calculation" had been made and that the amount to be paid to this group of clients was above $250,000.
335 On 18 May 2016, a meeting took place between Mr Ornsby and Mr Doyle regarding remediation in relation to the Instreet Product, as confirmed in an email from Mr Ornsby to Mr Doyle dated 19 May 2016 (CB tab 3176).
336 On 20 May 2016, Mr Werle (of ANZ) prepared a report headed "ART: Carrington Progress and Next Steps Report" (CB tab 2902). The first part of the report related to the Instreet Product. After setting out the background, the report stated:
On 16 May 2016 Carrington's principal adviser John [Doyle] recommended to all of his 21 clients holding a current Instreet product to remain invested. This conflicted with instructions to Mr Doyle received from RI. Therefore it is likely most clients will remain invested until the product matures in June 2017.
In the Carrington working group of 17 May 2016 it was decided that as a consequence of Mr Doyle's actions, no further correspondence to the clients relating to the Instreet investment was needed.
Clients' detriment for this population will be determined after the investment matures.
337 On 23 May 2016, Darren Williams, Head of Risk, Wealth Advice & Distribution at ANZ, sent an email to Tessa Micock of ANZ and Matthew Ellsmore (CB tab 2908). The email followed on from an email regarding the remediation in respect of the Instreet Product. Mr Williams's email noted that "all parties are now of the view that Doyle needs to be terminated as soon as possible". He asked the recipients of the email to let him know immediately if there was any change in that view and if anything arose that delayed this occurring.
338 On 25 May 2016, Mr Ornsby circulated by email a memorandum he had prepared on whether RI should terminate the authority of Mr Doyle with immediate effect (CB tab 2910, 2911). Parts of this document have been redacted on the basis of legal professional privilege. The memorandum set out the background in some detail and noted that Mr Doyle's authority was already due to terminate on 30 June 2016. Mr Ornsby recommended that that date be maintained. The memorandum included:
RI Advice understands its obligations to monitor and supervise its advisers and it is quite evident through his own actions, that John Doyle may not act under clear instruction from the AFSL, thus in a normal course of business, RI Advice would uphold its [rights] and terminate John immediately.
It is the extenuating circumstances of this matter that require urgent consideration. This includes:
1) As per the legal advice [Privileged].
2) We already have agreement with John to the termination of our agreement in 36 days time.
3) We have a buyer for the business and both parties are close to finalising a non binding terms document. (Due 31 May). Based upon execution of this document, it is envisaged that sale will be completed by 30 June
4) The potential buyer is currently authorised with FSP [Financial Services Partners Pty Ltd] and could easily transition into RI Advice.
5) [The] buyer is personally known to John Doyle and they share the same target segment (school teachers)
6) The buyer has been made aware of the issues with the Carrington business and has considered this in the proposed business valuation
7) Carringtons has approximately 800 clients
With the above in mind, RI Advice seek support for the recommendation to maintain Johns authority with RI Advice through to 30 June 2016. More robust monitoring and supervision must be applied to ensure client interests are managed appropriately.
339 The memorandum then sets out the following reasons for the recommendation:
The first concern of our business is the client, and John [Doyle] has a high number of active clients. Each of these clients have servicing needs, with many of the needs documented in ongoing service agreements. Our key concern with immediate termination is how will the financial planning needs of so many people be managed appropriately.
With an immediate termination, the risk of John giving poor quality advice is mitigated but we still hold a risk that John can then act outside his powers and provide advice to clients with no AFSL in place. John is passionate about his clients and we have little proof that John has implemented advice with consideration of his clients needs.
Upon immediate termination, we would have to contact all his clients to [advise] that John is no longer authorised. This may alarm the many clients who have held a long standing relationship with John, and we are concerned that if these clients cannot speak to John they may become stressed with the situation. (John does have a number of older clients in his book)
Our next key concern will be how we manage the needs of a high number of clients who may have a need for immediate advice. We can contract an aligned adviser for three days a week but this may not cater for the significant jump in queries we may receive post advising the client of the change.
RI Advice also hold grave concerns that such actions will impede the impending sale of the business. Under the current proposed transition process, John will be employed in a non adviser capacity by the buyer to facilitate the smooth transition of clients to the proposed buyer. This supports a smooth transition for the many clients of John Doyle.
It is envisaged that a smooth client transition will also maximise client retention post sale. Our goal is to ensure the buyer, operating under our AFSL, is given every best opportunity to retain the client base and ongoing intrinsic value in the business. (A fire sale type transaction will lead to lower client retention, potentially leading to financial stress on the buyer)
The final key consideration is that should we terminate John with immediate effect, and clients start to look for another adviser immediately, the sale of the business may not eventuate. This could lead to a situation where RI Advice is required to manage the many client needs without any infrastructure to support this over an extended period of time.
With the implementation of the strategies below, we believe we can mitigate the risk of John not following policy and procedure. We also believe that the inherent risk over the next 36 days is not different to the risk exposed to the business over the past three years.
340 The memorandum also set out some risk mitigation strategies.
341 On 30 June 2016, Carrington's and Mr Doyle's authority as representatives of RI came to an end.