Chapter 9 – Florence Tee’s pro bono favour to Katrina

Introduction

Of course, ASIC’s flawed and faulty analysis of Terry’s advice is not a one-off isolated exercise. ASIC did the same thing with Example 4- Advice of Florence Tee.

Katrina calls

Katrina rang Dover on 9 February 2016. Katrina was not a client, and Dover had not dealt with her before. Katrina explained she was caring for her disabled parents. Katrina was borrowing $800,000 to buy her parents’ home, as part of their arrangements.

Katrina spoke to Florence Tee, Dover’s CEO. Katrina said she wanted $800,000 of life insurance to cover her debt if she died prematurely, and to meet the bank’s requirements for the loan.

Why did Katrina call Dover?

Katrina stressed to Florence she did not want personal advice[1]. She already had personal advice from the AMP salesperson.

The AMP fees shocked Katrina, particularly the commissions. In the first 10 years Katrina would pay the salesman more than $20,000 for nothing more than a few hours clerical work[2].

An expensive few hours. Nice pay if you can get.

Katrina was down on her luck. Broke. Caring for disabled parents. Katrina could not afford $20,000, for virtually no service. In fact, Katrina did not want any service other than “execution only service[3]. Katrina definitely did not want financial product advice or personal advice. Katrina could not afford it, and did not want to pay for something already provided by the AMP salesman. Katrina just wanted the life insurance so she could get a bank loan so she could help her parents. As cheap as possible.

This was unusual for Dover

Dover did not usually engage directly with clients. It wasn’t its business. Dover’s business was closely supervising 400 financial planners, with all that entails. Florence was initially reluctant to get involved, but she listened to Katrina’s story. Katrina explained her AMP consultant had given her an offensively expensive quote for what she knew was only a tad of work ie completing some simple insurance applications. Florence caved, and agreed to help Katrina.

Why did Florence help Katrina?

Florence could easily help Katrina. It was only a few hours for a staff member in Dover’s Vietnam office. Labour costs were so low it was almost nil cost. But it would save Katrina nearly $20,000 in commissions in the next 10 years. So, Florence helped Katrina.

Florence did not check with Terry, or otherwise inform him. It was too trivial to bother. But if she did Terry would have immediately agreed to help Katrina. Florence helped Katrina on a no advice and pro-bono basis: Dover’s fee of $280 covered handling costs under the McMasters’ Commission Rebate Scheme..

Florence stressed she did not provide personal advice

Florence confirmed her instructions to Katrina later that day. Her e-mail to Katrina is shown below left. It is consistent with Florence’s file note from 9 February 2016 shown to its right.

No statement of advice needed

Florence did not provide personal advice to Katrina. Therefore she did not have to provide a statement of advice (SOA). However, Dover’s position on execution only advice was to require a SOA to be prepared as per usual, with the SOA describing what happened, and was about to happen[4]. Florence’s SOA was prepared by Dover’s Vietnam compliance team.

Florence’s SOA opened with this explanatory table:

Review by Ms Sharlini Diaz of Dover Legal

In February 2016 all Dover SOAs were reviewed by Dover Legal before they were sent to the client and, to speed up client processes, as they were sent to clients for about 50 “express lane” advisers. This changed late on 2016 when an independent law firm, MLA Lawyers, comprised of ex-Dover Legal staff, took over the SOA review function.

Florence’s SOA was reviewed by Dover Legal notwithstanding it was execution only advice.

This observation will become important as you read the next chapter.

[1] “Personal advice” is financial planning advice that must be provided in a formal “statement of advice” or SOA. RG 175-24

[2] It’s an industry myth that there is much work in an insurance application. There may have been 30 years ago. It’s all on line now. Katrina’s insurance applications were done in Dover’s Vietnam office and took less than two hours.

[3] You can read an article on execution only service here: Professional Planner: Execute this. Or not, as the case may be 7 February 2016

[4] Apart from good practice, this was needed to match up the commission payment with the SOA: Dover did not release commission payments without a matching SOA. This was to help make sure all SOAs were reviewed by Dover’s SOA review teams.

The Dover Group