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BMA735: IOOF Case Study - Management Ethics Assessment Answer
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Internal Code: 1AHIAF
Code: BMA735
IOOF Case Study Assessment Answer
Assignment Task: BMA735 A scandal at financial services giant IOOF involving claims of insider trading, front running and "misrepresentation" of performance numbers raises issues about culture and the insidiousness of vertical integration. Internal emails and documents obtained by The Australian Financial Review reveal breaches and errors in unit pricing in some of IOOF's cash management trusts. A July 2014 Risk and Compliance Committee (RCC) document prepared for the group's advice division describes an incident in 2009 were clients were paid too much in their cash management account, which resulted in clients since then "receiving a diluted distribution". The document said: "Communication to financial planners and clients – none to date." An email exchange between two compliance officers tasked with compiling a list of breaches in a handful of IOOF's cash management trusts, made the bombshell comment: "There seems to be just as many unit pricing incidents as there were breaches." The emails, composed on March 31, 2014, are referring to a request by the Australian Prudential Regulation Authority (APRA) to supply all investment breaches and unit pricing errors in several IOOF Funds, including Questor and IIML. It lists 15 separate incidents between 2012 and 2013. They include a Platinum Asset Management unit pricing error in late 2012 and a Questor Cash Management Fund issue in September 2012, which over distributed to a few internal unitholders to the tune of at least $6 million. What began in 1846 as the Victorian Grand Lodge of the Independent Order of Odd Fellows friendly society has grown into a 650,000?customer listed company. IOOF controls $150 billion of investor funds and uses almost 1200 financial planners who struggle with a hotchpotch of technology courtesy of acquisitions and a low?cost research department. IOOF demutualised in 2002, but it has grown significantly in the past few years through acquisition, including buying Bridges Financial Services, Shadforth, Lonsdale and a majority stake in Ord Minnett. The merger frenzy has made IOOF the second largest non?bank financial planning network in the country. The acquisitions have created the challenge of trying to marry a hotchpotch of technologies, platforms, dealer groups – both aligned and owned by IOOF – and different cultures. At the same time, costs have been slashed to help boost profit margins – and bonuses. As former stockbroker and fund manager Mike Mangan said, however: "It seems the whole financial services industry, with rare exceptions, is unethical at best; corrupt at worst. Occasionally someone with ethics comes along like an IOOF whistleblower. And they get fired for their ethical stand." BMA735 IOOF has had a number of whistleblowers over the past few years who have not survived the company. In the most recent case, the whistleblower, an equities analyst, spoke up to the human resources department, then ended up on stress leave then being sacked in May, while he was in the middle of a Fair Work case with IOOF. IOOF’s compliance reports reveal investigations into possible front running, evidence of training and compliance cheating and the misrepresentation of "out performance" numbers. These matters were all handled internally rather than being reported to the Australian Securities and Investments Commission. One senior IOOF staff member was investigated by the company in 2009 over suspicious trading, for example, despite insider trading being a criminal offense. A first and final warning was put on the staffer's file and he was told to repay the profits made on what IOOF itself described as "insider trading" to a charity of IOOF's choice. BMA735 The scandal at IOOF also puts the spotlight on the problems with vertical integration of investment management and financial planning. Financial planners are required by law to offer clients advice that is in their best financial interests not those of their company. But an email sent by one of IOOF's top financial advisers at its Bridges subsidiary in late 2013 said: "I ... was wondering if someone from Research could explain why you are recommending we place 50 per cent of our clients' managed fund portfolios into funds that have consistently underperformed their respective Morningstar Benchmarks." The financial adviser asked the research department: "What's going on here? I can't help but feel our research department has finally been compromised." The underperforming funds were IOOF funds and available on the company's approved product list (APL). A further scandal at IOOF was revealed in August 2018 at the Hayne Royal Commission where it was revealed that IOOF had paid compensation to its superannuation members out their own retirement savings. IOOF’s managing director Chris Kelaher, along with four senior executives, are now facing allegations that they failed to act in the best interests of superannuation members. APRA has now taken legal action against IOOF claiming that there was a "reasonable basis" to conclude that IOOF — along with its licensees IIML and Questor Financial Services — breached the Superannuation Industry Supervision (SIS) Act and failed to meet prudential standards. BMA735 The Royal Commission heard in August that IOOF had made an accounting error and sought to compensate its members for that mistake. But instead of dipping into its own corporate resources, IOOF took money out of the superannuation funds it managed. This led to Michael Hodge QC, counsel assisting the Royal Commission, to accuse the company of using members' money to compensate themselves. He also accused IOOF of breaching its duties as a superannuation trustee — duties to put members' interests above all else, even profit. APRA is also seeking to disqualify IOOF's chairperson George Venardos, chief financial officer David Coulter, company secretary Paul Vine, and general counsel Gary Riordan. If the action is successful, they will not be able to continue in their roles, as they would be prohibited from "being or acting as a responsible person of a trustee of a superannuation entity". Furthermore, APRA wants to impose additional restrictions on the licences of IOOF, along with its related entities IIML and Questor. The regulator attempted to work with IOOF for several years but "considered it was necessary to take stronger action after concluding the company was not making adequate progress", said APRA deputy chair Helen Rowell. There is a risk of the court action derailing ANZ's attempt to sell its financial planning business to IOOF. ANZ agreed to sell its OnePath Pensions and Investments businesses to IOOF for just $975 million in October 2017 — as it sought to exit the wealth management business like the other major banks. "Given the significance of APRA's action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA," said Alexis George, ANZ's deputy chief executive. BMA735 But the final words should be left with Mangan, who makes some thought?provoking comments about the industry, the behaviours and the type of people it attracts. "If cheats are allowed to prosper, it forces everyone else into a downward spiral to the bottom," he said. "You can't successfully compete against cheaters who are not held to account. It is mathematically impossible." Mangan suspects the finance industry is dominated by psychopaths and sociopaths. "By that I mean people who have zero empathy for anyone but themselves. If you have a pathological inability to see the harm you are causing, a pathological inability to relate to your victims as anything but marks, you're not going to change your behaviour unless some serious sanctions can be brought to bear on you.”This BMA735: IOOF Case Study Assessment has been solved by our Case Study experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.