Bob Nissen recalls ‘I was desperate, I was panicking. There were nights I couldn’t sleep’.
In July 2006 Bob Nissen was desperate. The 60-year-old’s finances weren’t in great shape and his daughter, a paranoid schizophrenic, was becoming increasingly dependent on him.
He turned to a trusted financial advisory firm in his home town of Cairns called Meridien Wealth, an authorised representative of Financial Wisdom, which was in turn owned by Commonwealth Bank.
Nissen met with Meridien Wealth’s star financial planner, Rollo Sherriff.
Commonwealth Bank paid out millions in compensation.
”I told him the priorities were to look after my daughter. And the next priority was to get my house sorted out because it was falling down around my ears,” he says.
Nissen signed up believing his life savings would be safe. ”Because of the Commonwealth Bank I thought it was rock solid, you can’t go wrong there.”
Sherriff advised him to gear up and invest in mainly high-risk, high fee-paying Commonwealth Bank products.
Then in June 2008, as the global financial crisis was starting to gather steam, Sherriff advised Nissen to gear up some more by remortgaging his house and borrowing $ 150,000 from Commonwealth Bank, a plan that Nissan signed off on.
A joint Four Corners and Fairfax Media investigation reveals that Nissen was one of almost 100 of Sherriff’s clients who lost tens of millions of dollars due to his inappropriate advice.
Sherriff was operating at the same time as financial planners Don Nguyen, Ricky Gillespie and others were riding high in another financial planning arm of the bank, Commonwealth Financial Planning.
Nguyen’s actions were exposed after bank insider Jeff Morris warned the corporate regulator, the Australian Securities and Investments Commission, of a ”high-level conspiracy” at CFP to conceal the ”corruption and gross incompetence” of Nguyen.
Morris’ actions, as revealed last year by Fairfax Media, resulted in CFP entering an enforceable undertaking with ASIC, which ended in October last year. His actions also triggered a high-profile Senate inquiry into the performance of ASIC, including why it took the regulator 16 months to act on Morris’ tip-off. The inquiry’s findings are scheduled for release later this month.
In the case of Financial Wisdom, however, there was no whistleblower or enforceable undertaking.
The actions of Sherriff were buried by the bank, with clients forced to sign confidentiality agreements in order to receive compensation.
This scandal missed out on an airing at the recent Senate inquiry. And it escaped public notice as Storm Financial, the now-notorious financial planning operation based in Townsville but with many clients in Cairns, blew up in 2009.
But it has now emerged at a crucial time for the financial planning industry, as the nation debates how it will fund the retirements of its ageing population, and as the Coalition government considers its planned wind-back of the previous government’s Future of Financial Advice reforms, brought in in the wake of the Storm collapse and others.
The Coalition’s proposed changes included reintroducing some forms of commissions, in a move that would have greatly benefited the big four banks that – with AMP – together own or control 80 per cent of the financial planning industry, and last year generated a combined $ 2.6 billion from their wealth management arms.
The changes are now on pause as the government consults further.
A shadow has already been cast over the financial planning operations of Commonwealth Bank, the biggest of the big four, with the biggest retail customer base, in the wake of last year’s revelations about CFP.
But now, the joint investigation into Meridien Wealth in Cairns by Fairfax Media and Four Corners shows how the bank continued to back Rollo Sherriff, despite warning signs about his financial advice, and how the bank failed to resource properly the compliance division that was supposed to police his operation.
The investigation shows that Commonwealth Bank first became aware of Sherriff’s practices in the early 2000s, when he was found to have given poor advice to clients. It was forced to compensate a number of these clients after they lodged complaints.
Sherriff’s conduct caught the attention of the professional body, the Financial Planning Association, which culminated in a decision in October 2004 to withdraw his status as a certified financial planner for five months. At the time, Sherriff and CBA’s Financial Wisdom fought this disciplinary action.
Fast forward to 2012 and the bank was once again forced to compensate some of Sherriff’s customers and this time put in place a secretive and complicated deal that effectively involved the bank in a speculative environmental start-up company Sherriff was promoting.
A former compliance officer at Commonwealth Bank’s financial planning business, Rod Gayford, has spoken for the first time about the culture inside the bank’s financial planning arms during 2007 and 2009. Gayford was one of a small number of compliance officers working inside Commonwealth Bank policing the conduct of planners in divisions including CFP and Financial Wisdom.
Gayford claims he and other compliance officers had little clout and were poorly resourced.
He said the bank’s focus was more on CFP. He said it took a more ”hands off” approach with Financial Wisdom when it came to compliance.
”There would’ve been less control over them, you know, being independent,” he says.
Financial Wisdom, a wholly owned subsidiary of Commonwealth Bank, was an amalgam of independent planners, or dealer groups, authorised to sell Commonwealth Bank products.
”There wasn’t a great deal of emphasis on Financial Wisdom when I was there,” Gayford says. ”My understanding was that some of them were cowboys.”
Sherriff started his career selling insurance with Colonial Mutual Life with partner Michael Irwin, who now runs a boutique wealth advisory business out of Brisbane. They set up a company which later traded under the name of Meridien Wealth.
The company started to attract a loyal base of clients, including the Nissen family, along with cane farmers, retirees and families, representing a cross-section of Cairns society.
At its height Meridien Wealth had 3000 customers and more than $ 135 million in funds under management.
Sherriff was described as the bank’s golden haired boy as he signed up more and more customers to its margin lending business. A former business associate remembers Sherriff being one of Commonwealth Bank’s biggest individual writers of margin loans in Queensland, boasting hundreds of clients.
The source says the Meridien Wealth business was booming primarily through the use of margin lending, in which a client borrows money to invest in shares – a potentially lucrative strategy in good times, but potentially disastrous when the sharemarket suffers a steep fall. Of the financial planning group’s $ 135 million in funds under management, about $ 50 million was tied to margin lending.
Against this backdrop, Sherriff and Irwin’s lunches had become legendary. They were partners in a local restaurant Casa de Meze and one source recalls the pair’s entertainment expenses being thousands of dollars a month. Sherriff denies this.
Sherriff was also racking up his credit card bills. Concerns were raised when his credit card debt hit $ 100,000 in 2005, making some of his partners nervous that his high living might result in him becoming bankrupt, which would have a negative impact on the Meridien Wealth business, of which Sherriff was a director and the biggest writer of business.
Sherriff has since blamed his debt on his marriage breakdown, saying he assumed responsibility for all marital debts.
By 2007 Sherriff had managed to increase his funds under management to $ 53 million, raking in money for both Meridien Wealth and Commonwealth Bank – whose products Sherriff was selling.
As the sharemarket rallied in the lead-up to the global financial crisis, everyone was making money. But Sherriff’s clients didn’t realise they were sitting on a time bomb, with Sherriff having encouraged some of them to take out margin loans and gear up.
While the markets kept going up, everything was fine. But once they began to fall, from mid-2008, this high-risk approach would unravel people’s savings, leaving them not just with losses but carrying enormous debts.
Fairfax Media and Four Corners have spoken to more than 20 clients whose savings were wiped out by this strategy as the global financial crisis set in. The bank compensated most of these.
Sherriff denies he ever gave inappropriate financial advice and says disciplinary actions was due to ”procedural irregularities”.
While he is aware compensation was paid out he says the losses were beyond his control.
”It is regretful that clients suffered losses,” he said. ”The global financial crisis was an unforeseen event that saw the sudden and deep contraction of global markets.”
In October 2007, Rollo Sherriff took another gamble and invested in a company, North Queensland & Pacific Biodiesel, which planned to make money turning cooking oil and rendered fat into diesel fuel. But it proved a pipedream hampered by supply-chain problems and limited demand.
At one stage the company was seeking to collect more than 6000 litres a week. But, according to board minutes, the company operated on ”zero income” for about two years.
In 2009, after the global financial crisis had hit, key backers started baling out of the venture. Sherriff needed capital to shore up the company, and decided to approach some of his customers at Meridien Wealth.
He used his Meridien Wealth email address to communicate with some of these investors about Biodiesel; at least one customer recalls him turning up at the house to talk about investment opportunities in the project.
One customer recalls him sitting at their computer to assist them to transfer funds into the project.
Four Corners and Fairfax Media contacted several of these customers who remembered feeling pressured by Sherriff to sign up to Biodiesel.
Company documents show that Sherriff convinced at least 13 of his clients from Meridien Wealth to invest about $ 750,000 in total in the side business. Many of these were facing retirement.
Sherriff admits he told some clients about Biodiesel but says it was at arm’s length to any advice provided under his licence with Financial Wisdom. He denies he was aggressive, but some of his clients felt otherwise.
As Biodiesel was collapsing in 2011, some of its shareholders traded stories about how they were drawn into the venture by Sherriff. In one email from the time, seen by Fairfax Media, an elderly couple who invested $ 70,000 in the venture described being ”pressured and deceived by Rollo as our financial adviser”.
This couple received a confidential settlement from the bank.
In another email, another investor – who was not a Meridien client and was therefore not compensated – tells how he was persuaded to invest his $ 80,000 inheritance.
”I first encountered FNQBiodiesel via the company web page in early 2008 and emailed asking for more information and whether there was an opportunity to invest. Imagine my surprise when some months later, Rollo Sherriff turned up at my door uninvited! To this day I do not know how he got my address! Perhaps naively, I saw this as a sign of enthusiasm, rather than desperation, and so began many, many long hours of discussions regarding the company, its direction and profitability.”
When Meridien Wealth became aware of Sherriff’s actions in regard to Biodiesel, it contacted Commonwealth Bank subsidiary Financial Wisdom, which was ultimately responsible for Sherriff’s actions as an authorised representative.
In early 2010, Commonwealth Bank finally launched its own investigation into Sherriff’s actions, particularly the Biodiesel affair.
The shares in the biodiesel venture that had been bought by Meridien Wealth clients were then bought up by the bank.
The bank then asked the shareholders to sign strict confidentiality clauses prohibiting them from disclosing the terms of the deal. Part of the contract was that the bank would receive a share of any proceeds should the business ever become valuable again.
Biodiesel collapsed in September 2011 with debts of more than $ 1 million, and questions were soon raised about Sherriff’s actions and the poor management of the company. The company’s accounts showed Sherriff had failed to pay for $ 65,000 worth of shares, although Sherriff denies this.
The liquidator suspected wrongdoing, and requested funds from ASIC to investigate , but ASIC denied the request.
Meanwhile, Sherriff’s world had started collapsing around him. He left Financial Wisdom in February 2010, and in March, with Biodiesel on the verge of collapse, credit card debts mounting, an investigation from Commonwealth Bank in train and in the wake of an expensive divorce settlement, Sherriff declared himself bankrupt.
Soon after, ASIC was hearing complaints about Sherriff on several fronts. In March 2010 the regulator’s financial advisers team had received a breach report from a senior manager in Commonwealth Bank’s advocacy and regulatory department. This was followed by a second breach report in November sent to ASIC’s misconduct and breach reporting team concerning Sherriff’s inappropriate advice. This joined concerns raised by the Biodiesel liquidator.
Despite these three separate complaints ASIC still took no enforcement action.
Sherriff’s actions followed a litany of scandals inside Commonwealth Bank. When Sherriff’s breach report arrived in ASIC’s inbox, ASIC was already aware of entrenched cultural problems among financial planners at the bank, in which big earners were rewarded irrespective of their methods.
Inside ASIC the Sherriff investigation was discussed by some of the most senior officers, including deputy chairman Peter Kell, who received an email containing ”a summary of the reasons to withdraw from action in relation to Rollo Sherriff” in 2013. This email was sent more than three years after the initial breach report by Commonwealth Bank.
ASIC stands by its decision not to pursue Sherriff and Commonwealth Bank. In a statement it said it had considered a range of factors before deciding not to take action against Mr Sherriff, including his decision to leave the financial services industry.
It says that while it will try to monitor Sherriff’s movements it can’t guarantee he won’t re-enter the industry.
Sherriff emerged from bankruptcy in March last year. He now installs solar panels in a business he runs with his wife Amanda. The company, called Replenishable Energy, operates out of his modest suburban home and a small office in an industrial park in Cairns. He says he is not interested in returning to financial planning.
His former company, Meridien Wealth, still operates in Cairns but under a different name, in a different location, with a different owner and selling different products. The scandal devastated the business. By April 2012 its annual income had dwindled to $ 638,000 a year. That same year Sydney-based fund manager David Adiseshan bought the business, valuing it at around $ 750,000. In an email he notes that while the business was not distressed it was ”over geared” when he bought it.
Bob Nissen is still trying to pick up the pieces. He still remembers the days of the global financial crisis, when his savings were being wiped out and his life almost fell apart.
”I was desperate, I was panicking. There were some nights I couldn’t sleep, worrying, what am I going to do. It’s all disappeared. I’ve been working and going nowhere and the house was leaking like a sieve,” he recalls.
On January 16, 2012, three years after losing Nissen’s money, Financial Wisdom wrote to clients – including Nissen – saying it had ”become aware” of concerns about the advice provided by Sherriff.
The letter said Financial Wisdom was working with Meridien Wealth to review the advice provided to clients of Sherriff. ”Please be assured this is a high priority for us,” the letter said.
It would take another 10 months before Nissen received any compensation for the money he had lost. He signed a settlement deed in November 2012 but could not disclose the amount, having signed a confidentiality agreement.
Nissen said the settlement wasn’t enough but he didn’t have the finances to challenge it. He said the settlement was without admission of liability from Financial Wisdom.
By the time Commonwealth Bank finished its investigation it had paid out $ 7.3 million to 98 of Mr Sherriff’s clients. ASIC will not say whether the compensation scheme was subject to independent oversight like other schemes conducted by the bank.
During the course of the Fairfax-Four Corners investigation, other clients have said they only received compensation after confronting the bank with their own notes or after approaching the Financial Ombudsman. Other clients were completely unaware that they were only one of almost a hundred others compensated.
In a response to questions, Commonwealth Bank said all Mr Sherriff’s clients had been reviewed and where losses had been suffered, clients were compensated. It said it had paid $ 7 million in compensation.
Nissen is now 67 and still working. Every second Wednesday he boards the 11.30am flight to Cloncurry, near Mount Isa, to work a tough seven-day shift, with men less than half his age.
”It’s a 12-hour day or a bit more, actually. In summertime the temperatures are 48 degrees. There’s flies and all the insects as well as the heat. Then in wintertime, which is coming up, it gets so cold, being out in the middle of Australia.”
As for Rollo, he says while he is ”regretful clients suffered losses”, he says the advice was properly delivered.
For more on this story, watch ‘Banking Bad’ on Four Corners, ABC, 8.30pm, Monday.