Ten questions Ken Done should have asked

MILLIONAIRE artist Ken Done is suing the Commonwealth Bank’s financial arm for $53 million – the amount he alleges was lost, representing three quarters of his fortune. He claims he was misled by false monthly performance statements. This raises huge questions for anyone using a financial planner – or in this case an accountant who is also a financial planner. Let’s look at what Ken should have asked.

Ken Done is famous for his iconic Sydney scenes and graphic designs and over the years has made a lot of money from his art. Apparently Ken Done went to his accountant, a Mr Chen from Bentley Barton & Partners, who was also a financial planner with Financial Wisdom – a company owned by the Commonwealth Bank.

Like many of us (although Ken is a bit wealthier) Ken claims he did not want to be bothered with the minutiae of how his money was invested, and relied on his original instructions to the financial planner, the perceived ‘safety’ of having a big player such as the CBA behind Financial Wisdom, the relationship he had with his accountant, and a quick look at the monthly performance statements.

As more and more of us accumulate wealth for our retirement, it’s a fair assumption that many of us will take Ken’s view – if it’s not safe with a big name player – where is it safe?

Why the Commonwealth Bank is defending the action

The Commonwealth Bank and Financial Wisdom are disputing the claims and defending the case on the basis that any involvement it had with Mr Done's affairs was of a very minor and limited nature and was not a cause of any loss to Mr Done.

The Commonwealth Bank’s spokesperson Brian Fitzgerald also claims it is important to differentiate between the Commonwealth Bank's financial planning arm (Commonwealth Financial Planning) which has 700 advisors, and Financial Wisdom. Financial Wisdom is a separate business with more than 444 advisers and $10 billion plus in funds under management.

“Financial Wisdom did provide some advice, but not on all the investment decisions. All the investment decisions were made by the accountancy firm and the accountant,” claims Brian Fitzgerald.

Ken Done’s accountant Mr. Chen was not a member of the CPA (Certified Practising Accountants) or the FPA (Financial Planning Association) – and you don’t have to be to practice. But to practice as a financial planner you should be licensed either directly through ASIC (Australian Securities and Investments Commission) or through a licensee such as Financial Wisdom.

SuperLiving asked the Commonwealth Bank what it required of its financial planners to become licensed by Financial Wisdom and the answer was that, “representatives provide their clients with advice that is tailored to their client’s specific needs,” and to do that they required the following:

• Requiring its planners to adhere to an approved product list which contains products that come from a range of companies (not just from their Group) and from which the planner can identify the products that best meet the client’s needs and preferences.
• Never having offered financial services, in any capacity, contrary to any relevant financial services law.
• Being solely and exclusively authorised by Financial Wisdom Limited (FWL) (unless with FWL's consent).
• Not be involved as a principal, agent, partner or employee in any other business unless FWL consents.
• Undertaking regular professional development training to stay up to date and give best possible service to their clients.
• Co-operating and keeping transparent all customer service processes, such as managing and resolving any complaints and disputes.
• Operating strictly under the relevant privacy provisions that cover the industry.

These guidelines seem to have provided no protection for Mr. Done, who says he paid more than $6 million in fees over six years for the advice. And as far as professional indemnity insurance is concerned, the FPA will cover fraud and misconduct, not incompetence.

Irrespective of whether these guidelines were adhered to or not, of Financial Wisdom’s 444 advisors, Mr. Chen was only one of 12 who are accountants. And therein lies a big question for the industry.

Accountant in the morning, financial planner in the afternoon

SuperLiving expert and CFP (certified financial planner) Neil Dearberg has a problem with your accountant being your financial planner. He claims the specialized nature of each profession and the sheer amount of required reading to keep up to date makes this a tough job.

“Financial Wisdom would not have companies on its authorised products list such as: soccer teams, a beauty spa, a catering company and Maltese biotechnology firm – the alleged cause of Mr. Done’s losses,” Neil points out.

So it begs the question – especially if you have had a long relationship with your accountant and they are also acting as a financial planner – which hat do they have on when they advise you to invest?

CPA spokesperson Michael Davison says that when an accountant is advising you into a product or investment they are acting as financial planner and they must be licensed to do so, holding an Australian Financial Services License or be acting as an authorised representative of a licensee such as Financial Wisdom – and they must disclose this to you. This means they have completed the appropriate training.

ASIC and the FPA both say when your advisor draws up any advice this written disclosure must include your details, your financial goals, any conflicts of interest and any fees or commissions due to the advisor. Any change of investments or strategy should also be in writing.

This is no guarantee of the quality of the advice, according to Neil. However, ASIC does have a guideline (The Regulatory Guide 175.100) about the quality of the advice, which reads:

Personal advice, by its nature, is likely to be relied on by retail clients who may suffer significant loss if the advice is not of sufficient quality. For this reason, the law imposes a specific obligation on providing entities to give due consideration to the client’s circumstances and the subject matter of the advice, and to ensure that the advice is appropriate. The importance of this obligation is further highlighted by the fact that failure to provide appropriate personal advice is an offence: s945A(1). Further, an affected person (e.g. a retail client) may take civil action for any loss or damages as a result of failure to comply with the suitability rule.

If your advisor is a member of the FPA, they have also signed up to a code of conduct and are subject to review by an independent panel if a complaint is made against them.

But then again, there is no requirement to be a member of the FPA to be a financial planner. It may be that your accountant is Fred Nurk and his financial planning business is Fred Nurk Financial Services – so it is important to check that the correct entity is giving the written advice.

There are also product providers who target accountants, as the main benefit of the product is a tax deduction. Neil cites forestry companies who “license accountants to sell their schemes, supposedly train them, pay them 5% commission + 7% marketing allowance (this equals 12% remuneration by any name), with only limited disclosure of commission required.” These are non – regulated investments, according to Neil and therefore outside the scope of ASIC.

Neil adds that: "Had he been only a financial planner (as a full time role) and not an accountant, he would have enjoyed both ASIC and Dealer group scrutiny".

What should Ken have done?

Neil offers the following ten tips:

1. Set expectations with your adviser in regard to returns, reporting, decision making, confirmation and types of investments.
2. For portfolios over say, $1 million, you should meet with your adviser at least twice per year for detailed review.
3. Everything should be in writing – advice, agreement, confirmation, changes to portfolio and reasons.
4. Good advice comes from good advisers, not large or small companies.
5. Overseas tax investments are always risky. (See this SuperLiving article to find out why.)
6. Shares themselves are NOT high risk; they ARE high volatility.
7. Risk profiling under common industry practices focuses on client emotion and uninformed knowledge; it places no emphasis on education or reality understanding.
8. A good adviser will want to know where all investments are, so a properly balanced portfolio can be recommended, even though he may not take responsibility for all.
9. It is personal stupidity to hand your money over to any adviser, without personal supervision – so accept personal accountability (funny how people take the credit themselves for good results but seek scapegoats when goes bad).
10. Understand:

• Volatility is normal market behaviour; live with it and make money over time.
• Quality investments eventually rise to their previous highs after a downfall.
• Speculation is not sound investing.
• How you will get out of an investment quickly if it turns bad – many examples recently show people lose money as they were greedy and didn’t understand liquidity issues, and nor did their adviser.
• If you don’t understand it, and/or your adviser can’t explain it so you do understand it, don’t invest in it!

Ken Done says as a result of his sad tale his investments are only worth $8 million instead of the $61 million he expected. You may or may not have Ken Done’s financial resources, but whatever you have, the moral of the tale is: it pays to keep a close eye on all your investments and a short leash on any financial advisor, whether or not they carry a well known dealer brand.

Where to find out more

This ASIC press release (from April 2006) gives a guide to 'quality of advice.’ Go to www.fido.gov.au

ASIC also has a Getting Advice brochure on its website

Ask FIDO, ASIC's website for consumers and investors, for your free copy of Getting Advice by visiting www.fido.gov.au, or by calling ASIC's infoline on 1300 300 630.

Reader Comments

Subject: I'm having my say... Ten questions Ken Done should have asked

Ken was Done.

Though I have read the article I still cannot fathom how the advisor would not have known that Ken cared about his nest-egg. What did the advisor need besides a proper authority? A painting describing the outcome? It should have been clear that when things started to sour he should have fessed up and called his mate.

That he didn't may indicate cowardice as well as incompetence - however I clearly don't know enough about the details to say what the accountant was good at and not good at. Kind Regards John

Comment 2
Having read the article it is clear that Mr Done got what he deserved and should not be playing the blame game ......

He did the one thing he should never have done - he allowed his financial future to be decided by someone who didn't have the same vested interest in it as he should have had.

Item 9 of Neils' ten tips says' it all.

The majority (not all) of financial planners are usually biased towards investments that give them (the planners) the greatest returns and not neccessarily the client - I have yet to meet a financial planner who is wealthy from his/her own investments , they are usually employed by one of the major banks , finance companys etc.

A financial planner can only give you the same advice that you can find out for yourself if you bother to do a bit of self education into what is available to invest in.

Show me a financial planner who has achieved a financial fortune from their own investments and I'll be only to happy to take his/her advice , until then I'll be the one responsible for my own financial future and not blame anyone else if I make a wrong decision. John