Financial Planners Will Have To Pay More Than Lip Service To Westpoint Victims

The Age

Saturday August 12, 2006

ALAN KOHLER

FINANCIAL planners are starting to offer compensation to victims of the Westpoint collapse as they try to head off legal claims against them, but in some ways the offers raise more issues than they solve.

That's because, while it's good that some firms, including one of the nation's largest, Bongiorno Group, are acknowledging fault and offering compensation, the offers range from 10 per cent of money lost to 50 per cent, and it is not clear on what the differences in the offers are based. Are they worked out according to how hard the sell was, and therefore a calibration of the firm's culpability? Or is it simply the old principle that the squeaky wheel gets the oil - that is, whoever complains the loudest gets the most to shut up?

If it's the latter, planners caught up in Westpoint can expect to be inundated with very loud complaints, as 3000 Westpoint victims attempt to short-circuit the legal avenues involved in trying to get back some of their money from planners who recommended the investment in return for commissions of about 10 per cent. There will be very little, if any, money from the liquidators.

Two legal avenues are available: the class action funded by litigation financier, IMF Australia, and run by Slater & Gordon, and the Financial Industry Complaints Service.

Five hundred people have signed up with IMF and Slater & Gordon and they are pursuing two firms: Bongiorno, and Australia's largest network of financial planners, Brisbane-based Professional Investment Services. IMF will collect 25 per cent of any winnings if the case is settled before December 2006, 30 per cent if before June 2007 and 40 per cent if it's after that time.

In other words, victims who choose the class action route can get between 60 and 75 per cent of their money back . . . if they win.

FICS has received 201 complaints, which both the Australian Securities and Investments Commission and FICS say is a surprisingly low number, although FICS procedures require that clients must go through their adviser first; and it may be that many are still getting the run-around.

PIS managing director Robert Bennetts said yesterday that his firm's exposure to Westpoint was very small and that he would be assessing each claim on its merits, although he said no offers of compensation had been made yet. "But we won't be attempting to run away from our responsibilities," he said.

No one from Bongiorno could be contacted yesterday.

The head of IMF, Hugh McLernon, says that if anyone has an offer of 50 per cent compensation from their financial planner they should take it immediately: "I would."

But most of the offers are believed to be about 10-20 per cent, which is a different matter.

In theory, a FICS complaint could yield 100 per cent compensation, but it is riskier and takes longer and only applies to losses of up to $100,000. The class action route is also risky and can only yield a maximum of 75 per cent.

ASIC chairman Jeffrey Lucy recently wrote to the 37 licensed financial planning firms that recommended Westpoint, warning them that ASIC would be watching how they dealt with clients who had lost money and urging them to volunteer settlements instead of waiting until claims got to court.

"ASIC expects that you . . . resolve most consumer complaints through the IDR (internal dispute resolution) process. This will be important in those cases where the amount of the loss is higher than the monetary claims limits of $100,000 under the FICS process."

In general, it is fair to say that as ASIC pursues the directors of Westpoint, the auditor, KPMG, over its audit of the 2004 accounts, plus financial planners for possible licence breaches, and as the compensation claims and class actions filter through the system, the fallout from Westpoint has only just begun.

TELSTRA

THE question about Telstra and T3 now is whether the Government can get an offer away, either retail or wholesale, without resolving the contradiction between retail and wholesale broadband prices.

Government policy is that people in the bush and the city pay the same for telecommunications. The Australian Consumer and Competition Commission wants wholesale access prices to be different to prevent profiteering in the city. The fibre-to-the-node network was canned because Telstra and the ACCC couldn't agree on a surcharge on city prices to pay for bush losses - Telstra wanted $13.63 a month, the ACCC said $2. It now comes down to the dividend. The Government needs it to be held at 28? for T3; the Telstra board has said the dividend is subject to "regulatory outcomes".

The regulatory outcome that matters is wholesale broadband access pricing - Telstra wants a single national wholesale price to match a single national retail price; the ACCC is about to impose a wholesale price cut for the city.

Interim arbitrations leaked this week suggest the wholesale price for metropolitan areas will be $17.70 a month - $4.30 a month less than Telstra says it is charging now, and $12.30 a month less than it wants to charge. If $17.70 is confirmed you would think the dividend will be cut. It is already 2.3? a share more than earnings per share and earnings are likely to fall further even without an adverse pricing decision.

Can the Government sell its remaining stake in Telstra with a 22? dividend? Of course - but not for $3.80 a share.

Will it sell for less? You bet.

Alan Kohler publishes Eureka Report,a newsletter financially backed by Carnegie, Wylie & Co.

-- ak@eurekareport.com.au

© 2006 The Age

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