Financial firm’s clients wait on compensation report
Clients of financial planning firm Poynter Hargraves could be eligible for compensation for financial loss caused by the firm's advice, conditions attached to its financial services licence show.
The Adelaide-based firm, which has thousands of clients across South Australia, New South Wales and Queensland, will be audited by an independent compliance expert after a "targeted surveillance" operation by the Australian Securities and Investments Commission found the company's practices wanting.
Under a deal struck with ASIC, the firm's managing director Craig Hargraves will step aside as the responsible manager for the firm, and it will have to appoint one or more other managers "with the necessary skills and experience'' in his stead.
A copy of new conditions attached to the company's Australian Financial Services Licence, obtained by News Corp Australia, show an independent expert will also be asked to conduct two reviews into the firm's practices.
There will be a particular focus on the company's advice around switching clients into its own product, Executive Choice Investments.
The first review, to be completed within three months, will pre-vet any advice which recommends ECI as a product and will also review a randomly-selected sample of historical advice which did recommend that product, to test whether it is compliant with the relevant legislation.
The review must also look at:
■ The licensee's real or perceived conflicts of interest regarding ECI, if any, to test whether the licensee is complaint with its obligations … to have in place adequate arrangements for the management of conflicts of interest,
■ Details of the files reviewed by the expert and a breakdown of the expert's assessment of the advice contained within those files, including whether the advice complied with the Act; and
■ The expert's opinion on whether and how each client should be remediated for any financial loss or other detriment suffered because of the advice.
The second review will assess the effectiveness of any changes suggested in the first report and include a random review of 10 personal advice files.
Two complaints to ASIC, which News Corp Australia has a copy of, allege that the Poynter Hargraves business model is based on moving clients from their existing retirement products into the in-house product, ECI.
One alleges that this strategy involved buying the client books of other financial planning firms and moving the clients into ECI.
One complainant alleges he was told by Mr Hargraves he was not allowed to recommend any other super or investment products.
Conversations with other former employees back this claim.
One complaint from an advisor who wishes to remain anonymous, indicates that his clients who were in low-cost index funds were expected to be directed into ECI, "whereby they (Poynter Hargraves) were the licensee, product provider and advisor, all in one''.
"It was also standard practice to increase the advisor fee if the change to Executive Choice resulted in a lower net product fee base for the client.''
This advisor wrote that his former clients "all have a tale of lack of service, lack of competent advice, lack of transparency or fees, massive hidden increases in fees and a feeling of having been 'ripped off'.''
"A number of these clients have decided to complain to ASIC.''
The licence conditions were imposed by consent following Poynter Hargraves' engagement in addressing ASIC's concerns, the regulator said.
Poynter Hargraves started in Adelaide in 1987, and now has offices in Parramatta and Miranda in NSW and Brisbane, Cairns, Mackay and Rockhampton in Queensland.
The firm is understood to have acquired at least five financial services companies and their clients in the past few years.
ASIC found that the firm "had poor risk controls around conflict management and was not adequately monitoring and supervising its representatives''.
"ASIC's surveillance also found that some clients were provided with financial advice that failed to meet the best interests duty and related obligations,'' the regulator said.
A detailed list of questions about these matters has been sent to Poynter Hargraves by News Corp Australia.
No response has yet been received.
Originally published as Financial firm's clients wait on compensation report