Illustration: Ron Tandberg
NOTE: The Australian Press Council partly upheld a complaint about this article. Read the full adjudication here.
Some financial advisers at the "millionaire's factory", Macquarie Group, cheated on competency exams using a document circulated by management known as the "Penske File", a Fairfax Media investigation reveals.
Fairfax Media can also reveal that Macquarie's financial advice division, Macquarie Private Wealth (MPW), may have incorrectly tipped hundreds, if not thousands, of clients into a high-risk category that exposes them to exotic and dangerous financial products.
Losses from poor advice at Macquarie, one of Australia's biggest planning groups, could run into the tens of millions.
Industry experts said categorising clients as "sophisticated" avoided paperwork for advisers but left customers vulnerable.
There is "no consumer protection, only downside for an investor who allows themselves to be categorised as 'sophisticated'," one expert said.
The Penske File, named after a folder of documents featured on 90s sitcom Seinfeld, contained answers to continuing professional development examinations that advisers are required to take annually in order to keep their professional accreditation up to date.
Former financial planner Jeff Morris, who blew the whistle on misconduct at the Commonwealth Bank, said: "I can't comment about Macquarie but it went on ... elsewhere in the industry, because the nature of the testing is open book, open slather."
Macquarie did not directly answer 45 questions put by Fairfax Media, including questions about the Penske File, but said it had introduced new "external compliance training".
It said it had also introduced "ongoing review of client files and client classification where concerns have been either identified by MPW or raised by clients".
In March MPW sent hundreds of letters to accountants asking them to complete a certificate on behalf of clients so they could be considered "sophisticated".
Some accountants expressed bemusement as to why Macquarie suddenly needed these certificates from clients who had been with the group for years.
"We were told by the adviser that they needed this to "put on the compliance file" and they sort of assumed we would just sign and send it back – needless to say we didn't sign it," one said.
Financial Planning Association chairman Matthew Rowe said the FPA was aware of a number of letters being sent to accounting firms requesting specific forms to be signed on behalf of clients stating that they were sophisticated investors.
Rowe said the definition of a sophisticated investor had not been reviewed in a long time. "They form part of the FPA's ten-point plan put to the government and opposition calling for a review of this definition as a consumer protection measure."
In June, a Senate inquiry found that MPW should be subject to "intensive surveillance" after raising concerns it was not complying with a deal with the corporate regulator to fix long-running problems.
However, details are emerging that the Australian Securities and Investments Commission's actions against MPW since then have been confined to closely monitoring the progress of the deal, an "enforceable undertaking", that was struck in January last year.
Experts combing through MPW's files as part of the enforceable undertaking have found hundreds of shoddy files that lack key documents including statements setting out what advice was given to clients.
MPW has also been forced to admit to ASIC that its advisers have committed additional breaches of the laws covering financial planning.
A Fairfax Media review of court cases filed against MPW around Australia also reveals a pattern of investors being urged to take out large margin loans to buy shares, just as world stockmarkets collapsed in the global financial crisis.
In some cases, clients say they have lost hundreds of thousands of dollars and been forced to sell property to meet repayments on the margin loans that were triggered by the fall in the market.
The lawsuits also reveal Macquarie aggressively defends itself against complaints by clients.
In one case, Macquarie even claimed that nine South Australian customers actually benefited when MPW planners exploited a loophole to pledge client assets against two different loans at the same time, dramatically increasing their risk.