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System damned by planner's decades of fraud

 More care: Scrutiny needs be be on licensee practises as much as it is on the employees. More care: Scrutiny needs be be on licensee practises as much as it is on the employees.

It seems incredible that a financial adviser could continue to rip off clients for two decades.

Such was the case with Sydney financial planner Melinda Scott, who was sentenced to a minimum three years and 10 months in jail for defrauding clients, including her friends, of almost $6 million.

Scott owned her own advice business, Roach Graham Scott, but operated under the licences of others, including, most recently, through a licensee owned by ANZ.

It was a Ponzi scheme where the savings from some clients were used to pay-out other clients, while pocketing the money herself.

Fraud can hard to detect. But our regulatory system, which regulates the employers of planners rather than individual planners, does not help.

Under the licensing regime, the employer holding the license has responsibility for all those operating under its licence.

Much has been written, including by myself, on how inadequate background checking by some employers leaves those seeking financial advice exposed. Bad apples have been able to circulate from employer to employer. Scott was banned from providing financial advice much earlier in her career. She was banned as a securities representative in 1996. The banning was for 10 years; a lengthy term which means she must have committed serious wrong-doing.

She was banned at the behest of the Australian Securities Commission; the forerunner of today's Australian Securities and Investments Commission.

The earlier Commission could only ban Scott from giving advice on investments, such as managed funds, as it did not have responsibility for insurance and superannuation. That meant she could continue to give advice on insurance and superannuation, including annuities.

She was able to get away with her crimes for so long, the judge of the trial observed, because her clients rarely checked their superannuation funds.

The judge also said there was a lack of scrutiny by those whose licences she operated under.

You would think that a previous banning order would be a red flag to any potential employer.

ANZ says its hiring processes have since been improved and that Scott would never be hired today.

ANZ has compensated most of the affected clients, with more compensation to follow, regardless of whether the losses occurred during or before Scott was an adviser operating under the license of an ANZ-owned subsidiary.

ASIC has repeatedly warned employers that they need to have "robust recruitment processes". That is especially the case when checking references and credentials of those who have worked for financial planning firms against whom it has taken action.

The much-anticipated public register of financial advisers will help arm consumers against dodgy advisers.

For the first time, everyone who is giving personal advice will have details about them listed.

A planner's qualifications and membership of professional associations will be listed. Most importantly, any bans, disqualifications and enforceable undertakings will be listed.

The register will start on March 31; though not all required information will on the register until May 30. ASIC will be able to impose financial penalties and possible jail terms for putting misleading information on the register.

Author: John Collett
Source: Moneymanager.com.au

 

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