Chapter 18 – After the Royal Commission

Introduction: not the best day of his life

The Royal Commission did not go well for Terry. It was not the best day of his life

First, the obvious set up of Andrew Smith on 18 April 2018. Then the even more obvious set up of Adam Palmer on 23 April 2018. Something was very wrong. Why did Ms Orr not lead the ASIC evidence showing each of these two Dover advisers were competent?

It’s not every day one can watch a Royal Commissioner, a senior QC, a junior barrister and an army of Assisting Solicitors suppress objective higher probative value ASIC evidence in favour of (mis) leading AMP and Westpac evidence. What are the odds of watching it twice in three days ? This is discussed in chapter 27 “Mr Hayne’s helping hands: how the Royal Commission helped set Dover up”.

This was a prequel to the main show a few days later, after the ANZAC Day holiday.

Second, the obvious set up of Terry by ASIC. The mountains of misleading and deceptive Dover documents and data ASIC fed the Royal Commission in the preceding months.

It’s not every day a Royal Commission Assisting Solicitor tells you your questions will be limited to your rubric, and your related witness statement. Then chucks all that in the bin for a slew of questions based on misleading and deceptive ASIC evidence[1]. The main ASIC documents[2] were:

  1. Dover Financial Advisers Pty Ltd (‘Dover’) – Discussion Paper dated 12 December 2016
  2. Stakeholder Referral to Financial Services Enforcement dated 29 March 2017[3]
  3. Dover Financial Advisers Pty Ltd (‘Dover’) – Memo to Ops dated 31 January 2017

The preceding chapters explain how these documents are false and misleading: virtually every line a lie. They were the basis for calling Terry as a witness at the Royal Commission.

What happened after the Royal Commission?

The few weeks after the Royal Commission did not go  well either. ASIC made no secret of its intention to close Dover. This is clear from paragraphs 33 to 39 of ASIC Discussion Paper dated 12 December 2016.

It is worth noting once more:

This is not meant to be funny: do you have any idea of how terrifying it is to read something like this on a Royal Commission website? To realise its two years old. Despite your constant requests ASIC had steadfastly refused to talk to you all that time?

To read in ASIC’s Stakeholder Referral to Financial Services Enforcement of 29 March 2017:

An unnecessary summary: ASIC set Dover up at the Royal Commission

ASIC wanted to close Dover down. ASIC wanted to ban Terry McMaster. That was clear.

ASIC had wanted to do this for nearly two years without letting Dover know. ASIC’s refusal to engage throughout 2016 and 2017, and ASIC’s omission of the client protection policy from ASIC’s 6 June 2017 letter, now made sense: ASIC had set Dover up at the Royal Commission using a series of misleading and deceptive documents it created for just that purpose.

ASIC had convinced the Royal Commission Terry was providing advice like this:

And Florence Tee was providing advice like this:

Terry and Florence obviously were not providing advice like that. As explained above nearly every sentence is both false and pejorative. The others are just pejorative.

The position is again tabulated here:

Table summarising ASIC’s false and misleading statements

Table showing ASIC’s 11 serious compliance concerns and Dover’s responses

 

ASIC ‘s concerns about Dover Dover’s response to ASIC’s concern
1 Dover’s process for the appointment of representatives is inadequate and in any event is not complied with. This is not correct. refer to chapter 4 where Dover demonstrates the process for appointing new advisers was adequate and in fact exceeded ASIC’s requirements
2 Dover’s arrangements for the monitoring and supervision of representatives are inadequate.

 

This is not correct. Refer to chapter 5 where Dover demonstrates its adviser monitoring and supervision processes exceeded ASIC’s requirements.
3 The quality of advice provided by Dover representatives is poor. A large proportion of files do not comply with the law. The personal financial advice provided by the Key Person and Responsible Manager (McMaster) and the second in charge of the licence (Tee) fails to comply with the law.

 

This is not correct. The reader is referred to chapter 13  where Dover demonstrates the quality of advice provided by Dover advisers is not poor and is above industry averages as measured by ASIC. The reader is refered to chapters 6, 7 & 8 where Dover demonstrates McMaster provided good compliant advice to Dr Amit. The reader is refered to chapters 6, 9 and 10 where Dover shows Tee provided good compl;iant advice to Katrina.
4 When adviser misconduct is identified by Dover … Dover fails to take appropriate steps to remediate the client in relation to the advice … provided. This is not correct. The reader is referred to chapter 11 where where Dover demonstrates it takes appropriate steps to remediate where clients receive certain advices on the termination of an adviser
5 A serious misconduct report relating to Dover’s conduct in managing a client complaint was recently received from FOS. FOS has alleged that in the process of managing a client complaint, Dover made implicit threats to the client regarding defamation action, contrary to FOS’ Terms of Reference. Dover is also alleged to have inappropriately released personal information to a third party This is not correct. The reader is refered to chapter 21 where Dover demonstrates that FOS failed to report elder abuse and Centrelink fraud and that FOS failed to advise ASIC that reporting elder abuse and Centrelink fraud does not breach the Privacy Act or any other “privacy obligations”.
6 When providing ASIC details of adviser remuneration under Notice, Dover misinformed ASIC regarding the origin of certain fees in relation to McMaster. Dover do not appear to differentiate between professional adviser fees (such as tax and legal fees) and advice related fees. This is not correct. McMasters’ and Terry McMaster did not charge clients for financial planning advice. Therefore there was no faliure to “differentiate between professional adviser fees… and advice related fees” because there were no advice related fees to differentiate. (McMaster did not accept commissions.)
7 ASIC has reviewed 2 files containing advice provided by Terry McMaster. ASIC has failed both files in relation to s961B, s961G and s961J. This is a repition of complaint 3.
8 McGrath Nicol reviewed 4 files containing advice provided by Terry McMaster (2 of these were the same as ASIC). McGrath Nicol failed all files in relation to s961B, s961G and s961J. See above and note  Dover applied section 961B(1) for the best interests duty and did not create a checklist under 961B(2). See Chapter 18 for an explanation of why ASIC’s approach to the best interests duty is incorrect.
9 Alleged misconduct in relation to Dover is attributable primarily to McMaster. He is the sole director and key person and oversees all aspects of the licensee’s compliance framework. McMaster is involved in all operational aspects of Dover and makes all decisions. See above, and the other chapters in this book. In summary, there was no misconduct by  McMaster. Every allegation of misconduct is competently refuted. There was no misconduct.
10 ASIC has reviewed 2 files containing advice provided by Florence Tee. ASIC has comprehensively failed both files in relation to s961B, s961G and s961J.

 

This is a repetion of complaint 3.). See Chapter 18 for an explanation of why ASIC’s approach to the best interests duty is incorrect.
11 McGrath Nicol reviewed 4 files containing advice provided by Florence Tee (2 of these were the same as ASIC). McGrath Nicol failed all files in relation to s961B, s961G and s961J.” See above

 

Dover engages with ASIC

Despite knowing ASIC wanted to close Dover and ban Terry from the financial services industry Dover decided to engage with ASIC. Dover realised by now it has been set up at the Royal Commission, as had Palmer and Smith, but it still decided to engage with ASIC.

On 4 May 2018 Dover wrote to ASIC:

Joanna Bird responded 11 days later:

Terry responded 13 minutes later:

Louise Macaulay responded further two days later: ASIC had changed its position and did not see the point in meeting[4].

Obviously things have changed. ASIC has gone from seeming to be interested in meeting to discuss an enforceable undertaking to not being interested. So what comes next?

What came next came the next day. This time it was from ASIC Financial Services Enforcement team. James McAllister-Harris, the ASIC lawyer who had not told Dover about ASIC’s concern the CPP was deceptive in June 2017, hid no concerns this time around:

ASIC’s letter dated 16 May 2018 alleged 5 grounds for ASIC cancelling or suspending Dover’s AFSL on 14 June 2018. It also alleged Terry McMaster was not of good fame and character.

These, ASIC said, breached numerous provisions of the Corporations Act, such that ASIC should cancel Dover’s AFSL. The date was set for 14 June 2018.

If Dover’s AFSL was cancelled or suspended it would be catastrophic for Dover, its employees and 410 advisers.

The advisers would lose their businesses overnight. Many borrowed to buy or otherwise fund their businesses. Many had employees, leases, and other financial commitments. Most had families and others dependant on them.

ASIC wanted to be seen as being tough. ASIC was being criticised daily for its soft touch with the large AFSLs. Dover was the perfect candidate for a public show of ASIC strength. No institutions involved so there would be no political blowback. As Daniel Crennan later said:

Dover had read:

  1. Dover Financial Advisers Pty Ltd (‘Dover’) – Discussion Paper dated 12 December 2016
  2. Stakeholder Referral to Financial Services Enforcement dated 29 March 2017[5]
  3. Dover Financial Advisers Pty Ltd (‘Dover’) – Memo to Ops dated 31 January 2017

Dover knew ASIC wanted to close Dover on 14 June 2018. Dover now knew ASIC had wanted to close Dover since 2016.Terry wrote back to James within the hour. Terry suggested the option of an orderly closure of Dover over 4 months rather than a chaotic immediate ASIC cancellation of Dover’s licence on 14 June 2018.

Terry wrote:

 What happened next? How did Dover close?

The next few steps in the story are detailed in the next chapter. In summary:

  1. Terry was not mentally competent to represent Dover in its dealings with ASIC
  2. Adrian McMaster and Integrity Compliance Lawyers represented Dover
  3. Dover and ASIC met at ASIC’s office on 1 June 2018
  4. ASIC said Dover’s closure was not optional. ASIC said Dover had to close on Friday 8 June 2018 and this was not negotiable (ie everything stops on 8 June 2018)
  5. Adrian suggested a compromise of “no advice” from Friday 8 June 2018 and 4 months for advisers to find a new AFSL
  6. ASIC and Dover agreed on no advice from Friday 8 June 2018 and 8 weeks for advisers to find a new AFSL
  7. the ASIC representatives then went to check with their senior management
  8. senior ASIC management said it had to be from Friday 8 June 2018 and just 4 weeks for advisers to find a new AFSL.

ASIC was ruthless

ASIC said Dover’s closure was not optional. It had to happen. But ASIC’s ruthlessness did not stop there. It became sheer bloody-minded malice. Once the “no advice” rule was accepted there was no downside to ASIC allowing 4 months for advisers to find a new AFSL. But ASIC would not agree to 4 months. It had to be just 8 weeks. ASIC senior management then cut it back from 8 weeks to 4 weeks at the last moment.

Evidence of ASIC forcing Dover to close

If the foregoing is not enough to convince you ASIC closed Dover reflect on why did:

  1. ASIC write numerous times it wanted to close Dover from 2016 on?
  2. ASIC serve notices on Dover of its intention to cancel its licence on 15 June 2018?
  3. ASIC force Dover to stop all advice on 8 June 2018?
  4. ASIC force a limit time for advisers to find a new AFSL to 4 weeks? (Think about it: if Dover was closing without pressure from ASIC why would Dover choose “no advice” from 8 June 2018 and “no advisers” by 6 July? Why not pick a more sensible time line?
  5. ASIC force Terry to sign an enforceable undertaking saying he was of poor fame and character?
  6. Dover agree to each of the above unless it was threatened with something worse?
  7. Gervase Green, ASIC’s National Media Manager tell his colleagues Louise Macaulay was happy for ASIC to be seen on the front foot and ASIC said no to Dover wanting to remain open for a longer period (‘the end of the year”) to allow advisers more time to find a new AFSL? See the email below
  8. ASIC release a punitive press release on 12 June 2018 recommending unhappy Dover clients get independent legal advice and other AFSLs be careful taking on ex-Dover advisers. This is shown below, with a sample of the bad press it generated?

No Dover face saving allowed

After the 1 June 2018 meeting Adrian McMaster asked ASIC if Dover could say it was Dover’s decision to close. ASIC wrote back on 5 June 2018 ASIC said Dover could not say this. This is why Dover’s e-mail to advisers on 8 June 2018 refers to “an arrangement” with ASIC. ASIC’s 5 June 2018 letter confirms it was ASIC’s decision to close Dover and was not Dover’s decision to close Dover. FOI requests confirm senior management reviewed 3 drafts of this letter before it was sent to Dover on 5 June 2018. There is no doubt as to its authority.

It’s a remarkably aggressive ASIC letter. Its ASIC meaning is clear:

 Why did ASIC deny responsibility for closing Dover?

The closure of Dover caused massive bad publicity and reputational damage within the financial planning industry. It was directed at Terry. He took the brunt of it.

By denying responsibility for closing Dover ASIC diverted this bad publicity from itself to Terry. This was malicious and  intentional. The industry back lash was a huge humiliating move by ASIC designed to hurt Dover. ASIC succeeded.

The killer punch: ASIC’s media release dated 12 June 2018

The killer punch came a few days later. ASIC put out this press release. It was picked up quickly by all the major media outlets.

The press release repeats the misleading impression that Dover closed voluntarily. But it goes far further than that. It invites complaints and implies Dover advisers provided poor advice and should seek independent legal advice.

The evidence for this was misleading and deceptive. This is demonstrated in the preceding chapters. It is summarised in chapter 12 where we show how the 11 case studies in chapter 12 “The 11 examples in ASIC’s Stakeholder Referral Paper 29 March 2017” are each incorrect and based on misleading and deceptive conduct by ASIC executives.

This was a deliberate kick in the guts from ASIC to Dover and its 410 advisers. There is nothing funny about it. It caused damage.

It was what Daniel Crennan would call dirty pool and James Shipton would call a breach of the Fairness Principle. But they won’t do anything about it.

 

[1] Dover’s response to the Royal Commission Interim report is reproduced at Chapter 27

[2] These three ASIC documents are reproduced in appendices 1 to 3

[3] These documents were created by ASIC and provided to the Royal Commission

[4] Contrast this with Tim Mullaly’s overnight rush to meet AMP executives committing alleged crimes as detailed in chapter 16

These documents were created by ASIC and provided to the Royal Commission

The Dover Group