The first ASIC paper includes two paragraphs and one example of Dover’s remediation processes where an adviser is terminated due to misconduct.
They are both brief and are easily reproduced here:
“31 Dover’s termination procedure is silent on communication with clients. It states only that in circumstances such as an adviser being banned or retiring, Dover will make arrangements for clients and their investment portfolios.
32 Dover advised ASIC at the surveillance visit that when it terminates an adviser for misconduct they write to the client and tell the client not to trust the advice they have been provided and that the client should get a second opinion.”
Why did ASIC not just ring Dover?
You should note the last paragraph of Example 5:
“The surveillance team is still analysing documents to verify if this letter went to clients. If it did, ASIC’s concern is that it only went to ANZ clients, not all clients and its misrepresents the reason for the communication including failing to tell the clients about the termination of the adviser.”
ASIC’s “surveillance team” could have saved a lot of time and effort by ringing Dover to ask what happened. Once again ASIC did not take this obvious step. In failing to take another obvious step ASIC once again led itself to an incorrect conclusion.
The letter was sent to every client Dover believed had misled ANZ (OnePath) by failing to disclose a pre-existing health condition. The following pages explain why.
A full and complete explanation of what happened in the Venture Egg case
Dover checked references and was told all was OK.
ASIC knew Venture Egg had joined Dover. Despite its “bad apples” policy ASIC did not tell Dover these advisers were under surveillance and ASIC had started a Federal Court action against them. This culminated in a Federal Court finding they had:
- breached section 961B of the Corporations Act by failing to take reasonable steps to ensure they provided advice that complied with the best interests obligations an
- breached section 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to their clients.
Bilal E-Helou and Adrian Chenh were each banned by ASIC for five years.
How did Dover handle the Venture Egg team?
Dover handled the Venture Egg team the same way it handled every other adviser. It reviewed each of their statements of advice before they were sent to the client and corrected them for any errors or potential breaches of the law. Dover’s Venture Egg file is thicker than most: many Venture Egg SOAs had to be amended to avoid breaching the best interests duty (section 916B) and the appropriateness of advice rule (section 961G).
During 2016 ASIC required Dover to provide copies of a large number of Venture Egg statements of advice. ASIC did not tell Dover that Venture Egg was being prosecuted in the Federal Court. ASIC reviewed each statement of advice and in each case advised Dover “NFA” or no further action. Reasonably, this means the advice complied with the best interests duty (section 916B) and the appropriateness of advice rule (section 961G).
Why did Dover terminate the Venture Egg team?
Dover did not terminate the Venture Egg team for the issues that saw them banned by ASIC, ie breaches of the best interests duty (section 916B) and the appropriateness of advice rule (section 961G). Their Dover advice was compliant as far as clients were concerned. The problem was things were not compliant as far as the ANZ was concerned.
In 2016 Dover introduced additional compliance checks involving insurers. Dover asked each insurer to provide statistical feedback about each adviser. Dover used this feedback to identify potential problem advisers. Usually the feedback related to a high lapse rate, which could indicate any one of a large number of underlying problems.
AFSLs are not involved in the insurance application. Most AFSLs have no knowledge of it and would not want to know anyway. Dover identified reviewing client insurance applications as a new way to identify compliance issues with advisers.
Almost all Venture Egg’s ANZ insurance applications were so called “clean skin” applications, ie applications where the client did not disclose a pre-existing health condition. The probability of this in a male over age 50 is about 10.1%. Venture Egg had seven clean skin over age 50 males in a row. The probability of this occurring is 10.1% times 10.1% times 10.1% times 10.1% times 10.1% times 10.1% times 10.1% times or, if it’s easier for you, 0.0000108%.
We stress ANZ did not initiate this feedback. Dover did. Dover requested it from the ANZ (and each other insurer). We are not aware of any AFSL implementing this compliance process.
What was Venture Egg doing wrong?
Venture Egg was encouraging, or even coaching, clients who had a health issue to not disclose it. This is a breach of the client’s duty of care (ie their duty of utmost good faith) to the insurer and breaches numerous other laws.
Hence Terry’s statement to ANZ, as quoted in Example 5 in the Dover Paper:
“We will write to each relevant client to make sure they have disclosed all health issues.
I note you say OnePath did not say that ‘OnePath believe your team (ie the Venture Egg team) is not disclosing health issues when completing insurance applications’. Forgive me for this error. OnePath may not say this, but I will. The statistical probability of the long sequence of cleanskin applications presented by (Venture Egg) defies belief. Its virtually nil. One way or another health issues have not been disclosed. It’s probably more an implicit unspoken and unwritten encouragement of the client’s silence than an overt and manifest deception.
But presented with facts I will take collusion and conspiracy over coincidence any day. The maths of the matter say there is non-disclosure (of health problems by the clients).
So we will write to each client.”
How is this different to the usual client remediation program?
If an adviser systemically breaches the compliance procedures it usually involves potential detriment to a client, not an institution such as an insurer. This means the usual remediation process will involve explaining the compliance breach to the client, perhaps suggesting they get separate advice (since it would be a conflict of interest for the AFSL to advise them) and recommend they lodge a complaint if they feel they have suffered a detriment.
This was not the case here. The insurer suffered a potential detriment, with the client gaining an equal and matching benefit.
- not charging a higher premium (ie a premium loading) to compensate for extra risk connected to a pre-existing health condition
- not accepting a lesser risk for the same premium by excluding claims connected to the pre-existing health condition (ie an exclusion) and or
- after two years, having to pay a claim connected to the non-disclosed health condition even though if it had been disclosed the insurer would not have accepted the risk.
How does an AFSL remediate a breach by the client?
This means Dover had to write to each client to explain the consequences of not disclosing a pre-existing health condition, and to urge the client to disclose any such condition to the insurer. This is different to a normal remediation program. It requires a different response: the client must be warned of the consequences of their (suspected) act or omission, ie their non-disclosure of a pre-existing health condition.
Dover wrote to each client in terms like those reproduced by ASIC in Example 5 above:
Your insurances with OnePath: Audit of insurance application
Dover is responsible for the advice provided to you by the (Venture Egg) group. We have selected your file for audit and wish to confirm that you have no health conditions that should be disclosed to an insurer. Your application says you have none, and this is unusual, so we wish to confirm this with you.
If you do not disclose a health condition to an insurer such as OnePath you are not entitled to claim for any event connected to that undisclosed health condition.
It is therefore a very serious matter to not disclose a health condition to an insurer.
What should you do now?
If you do not have a health condition that should be disclosed to an insurer you should do nothing. There is no need to respond to this letter.”
Three warnings to each client
In an abundance of caution Dover actually wrote to each client three times. Once by email, once by registered mail, and once by normal mail. Dover wanted to be certain it could prove it had told the client to disclose the health condition.
A sad but mandatory reflection
ASIC’s investigators, Andrew Davison and Leah Sciacca, got it badly wrong again. In the light of their previous efforts one has to conclude its deliberate. If not a straight-out dishonesty then it’s certainly driven by malice and suspicion. Why did ASIC not ask Dover what had happened?
Why did ASIC decline all requests to meet and discuss the audit? Why did ASIC not tell Dover they were concerned about, or perhaps did not understand the remediation program?
Dover detected a compliance error that most AFSLs would not have detected. It then terminated the advisers and lodged a breach report with ASIC. Dover wrote to the clients who it suspected had not disclosed their pre-existent health concerns to warn them of the risk they had created and to urge them to do the right thing.
Most AFSLs would not have detected the issue. Dover did, and acted appropriately.
What happened next?
As ASIC knows, after Dover terminated the Venture Egg teams’ proper authorities they moved to Interprac, the Independent Financial Magazine’s 2017 Dealer Group of the Year. Dover advised Interprac of its concerns about the Venture Egg group at the time, but Interprac took them on anyway. The Venture Egg advisers, including the banned advisers Bilal E-Helou and Adrian Chenh, are still in business and operating under the Interprac AFSL.
An interesting sequence of emails
You can read an interesting set of e-mails confirming this:
 ASIC requires AFSLs to report poor advisers, ie “bad apples” but does not tell the AFLS when it has a bad apple on its register
 You can read the ASIC press release reporting this here: ASIC press release reporting the Venture Egg matter
 You can read the court case here: https://download.asic.gov.au/media/4210761/17-100mr-asic-v-nsg-services.pdf
 Interestingly most of the NFA SOAs included the client protection policy: ASIC did not tell Dover it thought the CPP was deceptive.
 The idea occurred to Dover after ASIC started a similar program. Dover asked insurers to provide the same information provided to ASIC.
 As advised by ANZ in its e-mail dated 10 May 2016 to Dover reproduced below
 See section 13 of the Insurance Contracts Act
 Insurers can only decline a claim based on non-disclosure in the first two years of the policy’s term