A gripping day at the Royal Commission on 24 April 2018 saw the focus on poor advice shift from the major banks and AMP to a smaller ‘independent’ financial advice business, Henderson Maxwell. Sam Henderson has built a high profile in the independent advice space with regular appearances on Sky Business and The Panel, and columns in the AFR, Sydney Morning Herald and Money magazine. As the successful owner of a boutique advisory firm in Sydney with financial advice awards under his belt, $170 million under management and a recent equity sale to AZ New Generation Advisory, he presented as a role model for aspiring wealth managers across the country.
Safe to say he had his toughest day in the office ever, as an aggrieved client volunteered her advice experience with some startling revelations. The client, Donna McKenna, is a Commissioner with the Fair Work Commission.
The video of the client’s and Sam Henderson’s evidence is here, starting at about 5:00:00 on Day 17.
Focus on the actual advice
There is a lot to go through. The biggest issue was advice to roll out of a rare ‘deferred benefit’ public service scheme, with the consequence of the client missing out on a potential $500,000 deferred retirement benefit two years later. Mr Henderson said this background was not relayed to him by his staff at the time of the advice.
The direction to inject the proceeds into a new 'Henderson Maxwell Accounting' originated SMSF and then invest into a 'Henderson Maxwell Investments' managed account share portfolio compounded this poor advice. The Commission heard the fees on the managed account were 1.1% to 1.8% depending on the amount, plus 0.525% brokerage. The recommendation included using a third party managed account platform that Mr Henderson was an equity holder in at the time (but has since sold out of). The client advised the Commission that she had repeatedly told Mr Henderson at the initial meeting that she did not have the skills or time to run an SMSF and definitely did not want one, but was told, "We'll look after it."
All this for a $4,950 up-front advice fee, plus the client moving from a current annual fee structure of $2,700 to $14,642 per year with setup fees of $6,000.
Exacerbating the whole process, his assistant pretended to be the client at least four times in phone calls to the client’s existing superannuation fund, his non-existent Masters degree was recorded on regulatory client documentation and finally a series of emails with the Financial Planning Association in an investigation was less than complimentary about the client.
It’s difficult to think of anything else that could have gone wrong.
Advice without commissions will come at a cost
I feel for Sam a bit, as public service funds are often confusing and generally have a number of subtle benefits not normally found in other superannuation products that are available to the general public. When a client walks in with significant funds in one of these schemes, the adviser must get the facts straight. The fact that the fund repeatedly told his assistant the deferred benefit would be lost shows some serious lapses in the background research.
In the past, I have found that usually a client is better off to remain where they are for these reasons, and the advice opportunity should be used to find other facets of a client’s financial life that may need attention.
Carelessness on this point aside, the remainder of the advice shows inadequate research and cookie-cutter advice that often plagues the advice industry. Clearly, it’s time is up.
As the Royal Commission moves from discovery to action, and the public demands more client-centric advice that is driven by client best interests, a new dawn approaches for advisers who wish to do the right thing and be successful. The next step will be managing the client expectation that good quality advice, without the commissions and aligned interests, simply cannot come cheap.
Tim Fuller is a Certified Financial Planner and Head of Operations at Nucleus Wealth. This article draws on publicly available information heard at the Royal Commission, with the complete transcript available here.