How to avoid being ripped off by a dodgy financial planner
Beth Spence remembers when Bradley Sherwin, a Brisbane financial planner, paid a house visit to meet her and her husband Mick, who was recovering from a serious workplace accident, and her elderly parents.
It culminated in Sherwin putting his arm around her mother's shoulder and saying: "Don't worry, Mrs Paynter, you'll never have to worry about money again."
It was 1996 and Beth recalls it was an emotional moment.
"It was all crap really," she says.
She believes Sherwin had been defrauding his clients for many years.
"He had this plan all along," she says.
Beth says that even though Sherwin was highly recommended by a family member, she didn't take him at face value and carefully checked out his licences and qualifications with the Australian Securities and Investments Commission (ASIC).
He passed all the checks.
Over the years, Beth and Mick grew to trust Sherwin more and more but he was deceiving them, particularly after he talked them into setting up a self-managed superannuation fund (SMSF).
Sherwin told them it was more tax effective.
Unbeknown to Beth and Mick, it gave him direct access to their $500,000 retirement savings, as he set up secret bank accounts with forged signatures. For years they believed they were invested in moderate risk assets but Sherwin ploughed their money into his speculative property companies.
With Beth caring for her husband and parents, the Spences lived a frugal life on the investment returns from Mick's compensation payout.
They were proudly self-funded, with their biggest expenses being medical bills.
But Sherwin was playing a frantic game of Russian roulette with clients' money, using it to fund whatever came up - pension payments, investment returns to clients, tax bills, client redemptions and risky property construction costs.
Then there was the extravagant lifestyle.
ASIC investigations subsequently revealed Sherwin had set up a Ponzi-type scheme using investors' funds for purposes of which they were unaware. They found out in January 2013 that all their money had gone.
Almost five years later, in November last year, the 63-year-old Sherwin was jailed for 10 years, with a non-parole period of four years, on 24 counts of fraud and one count of breaching his duties as a director of Wickham Securities, an associated company. He lost the $60 million life savings of 400 clients.
The shock of discovering the financial loss and then having to rely on the government after being self-funded has been devastating for the 400 clients.
"The sheer horror of learning that you have lost everything is really only the beginning. It is pretty shocking what happens for the next five years. It becomes an ongoing trauma," says Nigel Jeffares, who lost retirement savings of $370,000.
He describes what has happened to the 400 Sherwin clients as "elder abuse at a corporate level".
Jeffares told the hearing that as a result of losing all his superannuation he now suffers from depression and other health issues and is unable to see his adult children and grandchild who live and work overseas.
"It puts you in a desperate emotional state. You miss out on the family things like helping my daughter to buy a new washing machine. Sometimes you want to buy your grandson a $10 T-shirt, not one for $2.75," says Beth.
"The average age of the group of investors is 70. Most people couldn't go back to work to earn any money."
Damian Scattini, partner at Quinn Emanuel Urquhart & Sullivan, which mounted a class action on behalf of the investors, says the upshot is that good people had worked hard all their lives and lived carefully so that Sherwin could enjoy the high life.
Sherwin's clients included retired policemen, retired farmers, miners, graziers, refinery workers, people who worked at The Courier Mail newspaper, and actors. Often he tracked down people who had received insurance payouts for workplace accidents or conditions such as post-traumatic stress disorder.
Sherwin's clients were also shocked to find that they had to keep their depleted SMSFs open for legal reasons, even though they couldn't afford the annual compliance costs of $3500 to $5000. Many were fined by the tax office.
"A lot of people have got fines from the ATO. We tried for three to four years to get a moratorium on the DIY fund."
The 10-year jail sentence is a big win for ASIC. Garth Robertson, the former CEO of Wickham Securities, was sentenced to five years' jail and Brian Kingston, the auditor of Wickham Securities, had his registration cancelled.
When sentencing Sherwin, District Court judge Julie Dick said she needed to impose a sentence that deterred other people from engaging in similar conduct.
"I need to make it clear to the community, through the sentence, that the court denounces the conduct in which you were involved. Our society rests on the fact that people can trust other people with their money. When that trust goes, the usual way we carry out commerce is fractured."
Since August 2010, ASIC has imposed bans on 220 financial planners, with over half being permanent and the rest temporary, with a typical length of five years. Since 2008, 37 court convictions have been recorded against advisers, with 18 sentenced to jail.
ASIC's legal team has earned the praise of the Sherwin investors and Scattini, who is also working on a class action against Bank of Queensland and fund manager DDH Graham in the Federal Court. "ASIC was first-rate," he says.
However, he would like to see it better resourced as there are not enough staff and the existing ones are overworked.
Jeffares points out that, apart from Sherwin and Robertson, there were other employees who were key administrators and are still in the financial services industry. Some don't mention their connection with Sherwin.
"People have a right to know who they are dealing with," says Jeffares.
It's crucial for investors who lose money to band together with others in the same position. However, this can be difficult because under freedom of information laws you cannot get other people's contact details. "You are absolutely on your own," says Beth.
It took three years to get a group together and for ASIC and the ATO to post the email address of the group. The Sherwin investors formed the Superannuation Crisis Support Group.
"The group has given me strength. It helps me understand that I am not stupid and alone," says Beth.
One of the aims of the support group is to help direct people who suddenly lose all their money to an organisation. "There is no one central entity out there to help people find out about housing or how to pay their electricity bills or what they should do if they get a fine from the tax office," she says.
The group says UnitingCare has come to the party with a seniors enquiry line.
How to avoid being scammed
- Don't let your planner move you from a low-fee, solidly performing superannuation fund into a self-managed fund that has no APRA governance.
- Never go into an SMSF unless you understand it and can run the investments and administration.
- Be wary of any extravagant schmoozing by a financial planner, such as expensive restaurants meals or invitations to boxes at sports events.
- Don't let your planner or anyone at their firm have the authority to sign your investment and banking documents.
- Don't allow them to transfer funds between accounts because they can move money to their own accounts.
- Always be vigilant about your financial planner's actions because the more you trust them, the more vulnerable you are to being deceived.
- Always get a copy of all the documents and correspondence. Don't let the planner keep all the information.
- Don't trust qualifications listed on websites. These can easily be fudged.
- Make sure you can view your investments in real time. Super funds typically give you live updates on the value of your investments. Shares and other listed investments can be viewed online but unlisted property is valued only once or twice a year. Don't put up with waiting for statements for listed investments that only come out every six months.
What to do if things go wrong
The Australian Securities and Investments Commission (ASIC) offers these tips:
- Always check that a financial adviser is authorised to provide advice before engaging them. Check the Financial Advisers Register and the government's MoneySmart website (moneysmart.gov.au), for tips on choosing a financial adviser.
- If you are unhappy with any aspect of the service you receive, try to resolve it with the adviser. Then you should make a complaint through the adviser's internal dispute resolution system. Their financial services guide will tell you how to do this.
- You should receive an acknowledgement from the adviser's dispute resolution system within 14 days. They have 45 days to provide a final response.
- If you're unhappy with the response, you can contact an external dispute resolution scheme. The business must tell you which scheme it belongs to. You can also complain to the adviser's industry association and/or professional body. This information will also be in the Financial Advisers Register. Alternatively, you can lodge a complaint with ASIC.
- MoneySmart's website outlines the steps you can take if your adviser has been banned.