Chapter 5 – ASIC Example 2: Dover’s SOA Review Processes

First an observation

Dover is the only AFSL that checked every SOA three times before it was sent to the client.

There is no statutory obligation on an AFSL to check an adviser’s statement of advice before it is sent to the client. This was an obligation assumed by Dover. In February 2015 Dover did not check every statement of advice before it was sent to the client. Dover’s compliance team only checked “complex” SOAs, ie those involving debt, non-conservative investments, investments above $400,000, or large insurance premiums.

The process changed in late 2015. Dover started checking every SOA before it went to the client. We believe this meant close to 100% of SOAs were checked. This is because:

  1. every commission remittance was reconciled to a SOA. If there was no SOA the commission was not paid
  2. advisers who were detected not submitting SOAs for review were usually terminated and
  3. advisers were instructed Dover would not invoke its indemnity insurance if they did not submit the SOA for review. This was Dover’s “swim between the flags” rule.

The most robust SOA review processes Holley Nethercote had seen

In 2013 Holley-Nethercote a well know AFSL compliance law firm, described Dover’s SOA review processes as “the most robust they had seen”. This was quite a compliment because they are the premier AFSL compliance law firm[1].

Dover’s emphasis on quality advice always in the client’s best interests and free of product creator influence, and multiple reviews by independent persons, manifested in an extremely low FOS complaint rate.

Dover had fewer than 10% of the FOS complaints of similar sized AFSLs. Terry McMaster and Florence Tee had no FOS complaints. It appears ASIC did not bother to check this critical fact until July 2018[2], as you can see from the e-mail dated 5 July 2018 pictured above.

Extensive due diligence by each of Deloitte and Holley-Nethercote during a planned sale of McMasters’ Accountants Solicitors and Financial Planners in 2015/16

In 2015 First State Super[3] (FSS) approached Terry with an offer to buy McMasters’ Accounting Solicitors and Financial Planning.

FFS was particularly interested in the financial planning practice. It put McMasters’ to a detailed and demanding due diligence[4]process.

Its review focused on Terry’s advice to doctors, dentists and other high net worth clients.

FSS used its own compliance staff. FSS also instructed consultants from Deloitte and Grant Holley from Holley Nethercote to take a deep dive into McMasters’ and Dover’s SOA preparation and review processes. The FSS audit was much more detailed than ASIC’s audit.

Dover and McMasters’ passed with flying colours. FSS offered to buy McMasters’ for $6m.

Extensive due diligence by Australian Super and PriceWaterhouseCoopers in 2013 and

In late 2013 Dover was subject to a detailed due diligence exercise by each of Australian Super and its consultant PricewaterhouseCoopers[5]. A second follow up review was completed by Australian Super in 2016/17. Its purpose was to confirm Dover’s advisers provided compliant and ethical advice to Australian Super members.

More extensive due diligence by Australian Super in 2016/17

In 2016 Australian Super was concerned Dover’s rapid growth was not matched by its compliance resources. It came back to make sure all was in order. Dover was its largest affiliate. Australian Super had a vested interest in Dover being competent to provide services to its 2,200,000 members. It spent more than a week at Dover’s office checking all was in order.

Australian Super was interested in “… appropriate compliance frameworks and oversight processes to ensure quality advice is provided to our members”.

Dover passed this review with flying colours too.

Annual review by AFSL compliance law firms.

Over the 3 years to 2017 Sophie Grace, Holley Nethercote and Integrity Compliance reviewed Dover’s compliance processes. They each reported all was in order at Dover.

In-house review by expert compliance staff: detailed internal review of all SOAs

Dover employed 12 legally qualified Australian compliance staff, some were also solicitors, accountants or financial planners, and some were all three. They reviewed every SOA before it was sent to the client. The ratio of SOA compliance staff to advisers at June 2018 was 1:34, which is about three times the industry average.

Separate independent review of every SOA by MLA Lawyers

From mid-2016 on MLA Lawyers reviewed every Dover SOA for compliance with the best interests duty (section 961B(1), not section 961B(2)) and the appropriateness of advice rule[6].

This was a unique feature of Dover: literally every SOA was reviewed three times before it was sent to the client. Once in Dover’s Vietnam office. Once in Dover’s Australian Office and once by MLA Lawyers[7].

ASIC rejected the 2016 Holley Nethercote and Sophie Grace reports as incompetent

What more could Dover have done to cooperate with ASIC?

Contrast Dover’s attitude to those of AMP and the big banks[8]. (Just read any newspaper.)

Dover did not have to give the 2016 Holley Nethercote and the Sophie Grace  report to ASIC. They were legally privileged documents. Dover did anyway. Dover wanted to show ASIC how its compliance systems worked and to cooperate with the ASIC audit that Dover requested[9].

ASIC dismissed both reports as incompetent. ASIC did not tell Dover it had done so. ASIC’s failure to inform Dover it dismissed the Holley Nethercote and Sophie Grace reports as incompetent comprises a seriously misleading and deceptive behaviour.

ASIC knew Dover believed it was compliant based on these reports. ASIC chose to not tell Dover it disagreed. The first Dover heard about this was after Terry was a witness in the Royal Commission on Thursday 26 April 2018 when it was able to access the ASIC Paper (and the other ASIC documents) on the Royal Commission’s website.

Please compare the Holley Nethercote report to ASIC’s work

The Holley Nethercote report is reproduced on the next three pages[10]. Please read it and, recalling the other experts[11] who reviewed Dover between 2013 and 2017, ask yourself:

  1. how could ASIC dismiss the Holley Nethercote report as incompetent?
  2. are the ASIC officers telling the truth about Dover’s SOA review processes? Are they telling the truth about Dover’s other compliance processes?
  3. are the ASIC officers competent if their work differs so much from the recognised AFSL compliance leaders and eight other consulting firms?
  4. who is right, Holley Nethercote and the other eight consulting firms who spent months in Dover’s offices with hands on detailed checking? Or the two ASIC officers who spent less than one hour?

ASIC’s bad faith represents more misleading and deceptive conduct

Dover asked for the surveillance audit[12]. Dover  volunteered the 2016 Holley Nethercote report and the Sophie Grace report to ASIC in good faith. Dover wanted to show ASIC what it was doing to make sure it was as compliant as possible. Other AFSLs do the exact opposite.

ASIC repaid Dover’s good faith with bad faith.

The real question is why did ASIC not tell Dover?  Why did ASIC not respond to one of Dover’s many requests for feedback and its undertakings to rectify any compliance concerns?[13]

Why did ASIC not tell Dover what it had written in the ASIC Paper on 12 December 2016?

The client protection policy: ASIC did not express any concerns in 2016 (or 2017)

Dover’s client protection policy (CPP) is discussed in detail in other parts of this book[14]. We will be brief here. You will notice Holley Nethercote discusses the CPP in detail and do not raise any concerns about it. The Holley Nethercote report was voluntarily provided to ASIC in 2016. ASIC decided their report was incompetent and the CPP was deceptive. But did not tell Dover.

ASIC did not mention the CPP during 2017. This was despite ASIC advising Dover of its audit concerns twice in June 2107, and Dover undertaking to rectify any compliance issues even before ASIC advised what they were. (No other large AFSL has ever done that.)

ASIC did not tell Dover it believed the CPP was defective until 22 March 2018. This was just a few weeks before the start of the Royal Commission second round of hearings dealing with financial planning. Dover was the only non-institutional AFSL called as a witness.

Dover acted in good faith. ASIC acted in bad faith.

Why did ASIC not tell Dover it believed the CPP was deceptive?

ASIC was setting Dover and Terry up at the Royal Commission.

 

[1] Dover met Holley Nethercote in 2012 at a seminar held in ASIC’s Melbourne office. Grant Holley was the presenter.

[2] FOI requests reveal The Financial Ombudsman Service informing ASIC that Dover had a very low complaint rate.

[3] The NSW based First State Super merged with the Victorian based Health Super in 2013. Terry had for years actively recommended Health Super to his compliance clients.

[4] Interestingly Deloitte approached Dover’s compliance staff including Yin Low with employment offers after ASIC closed Dover.

[5] Terry McMaster worked for Price Waterhouse in the nineteen-eighties as a tax manager specializing in life insurance taxation.

[6] MLA Lawyers also attended Dover’s compliance meetings, and were usually seated in work stations next to Dover’s SOA review team so they could constantly engage in the SOA review process. Terry McMaster also sat in a workstation with Dover’s SOA review team so he was constantly engaged in the SOA review process.

[7] Terry McMaster is not an owner of MLA Lawyers. MLA Lawyers started doing this in August 2016. Previously Dover Legal reviewed every Dover SOA. Terry was an owner of Dover Legal. This is why the process changed: Dover wanted the final review to be independent.

[8] As you can read AMP and the big banks fight tooth and nail to withhold documents from ASIC

[9] Terry McMaster requested the audit on 20 April 2016 at a meeting with Louise Macaulay. Terry was responding to a written invitation to meet from Louise’s job share colleague Joanna Bird.

[10] Astute readers will notice the 2016 Holley Nethercote report discusses Dover’s Client Protection Policy without any reservation (it in fact concludes that it provides extra information but is of no probative value). This aspect of the report is discussed in detail in Part 2 and is otherwise not discussed in Part 1.)

[11] Deloitte, PricewaterhouseCoopers, First State Super, Australian Super, Imac Legal, MLA Lawyers, Sophie Grace and Integrity Compliance: presumably they all got it wrong and Andrew Davison and Leah Sciacca got it right

[12] We stress Terry McMaster requested the audit on 20 April 2016 at a meeting with Louise Macaulay. Terry was responding to a written invitation to meet from Louise’s job share colleague Joanna Bird. Dover was proceeding in complete good faith. ASIC was not.

[13] See chapter 13 for a full discussion of how ASIC’s in-house lawyers ignored Dover’s requests for feedback and undertakings to rectify any client concerns as part of the ASIC strategy to set Dover up at the Royal Commission.

[14] Not included in this document

The Dover Group