WealthSure: behind the scenes

Milana Pokrajac takes a look at the troubled dealer group WealthSure, its history and its plan to change what the regulator deemed a bad compliance culture. 

The latest move by Australia’s financial services watchdog has forced WA-based dealer group WealthSure to cut ties with its former chief executive officer Darren Pawski, restructure its board and significantly improve its compliance processes – or else. 

WealthSure, which was established in 2001, is one of largest dealer groups in the country and one of the rare larger players in the non-bank aligned space. 

But when the Australian Securities and Investments Commission (ASIC) announced it had accepted enforceable undertakings (EUs) from WealthSure and Pawski, some light was shed on the group’s “lite touch” approach to compliance and some of the concerns held by the regulator ever since 2011.  

The investigation 

In early 2011, ASIC raised concerns about so-called “aggregator licensees” for the first time. Aggregator licensees are dealer groups which achieve rapid growth by acquiring other small businesses without necessarily investing in new or additional compliance resources. 

The regulator said some of those companies were running so-called “lite touch” business models and promised it would take a closer look at their compliance systems and the advice provided to clients. 

 One of those licensees was WealthSure and, sure enough, ASIC commenced its investigation into the group in December 2011. The group’s history with the regulator dates back to 2006 when ASIC imposed additional conditions on its licence.

The 2011 surveillance included reviewing various client files and the compliance program framework. 

The review of the group’s compliance systems showed recurring deficiencies, along with a number of other concerns. According to ASIC, WealthSure failed to: 

• Regularly and consistently review financial product advice provided by its planners; 
• Subject advisers with a higher risk of compliance breaches to more frequent random audits; 
• Investigate non-compliant adviser conduct; 
• Provide its advisers with robust documented policies and procedures; and 
• Have adequate adviser training processes in place. 

WealthSure wasn’t the only group that was busted for poor compliance during ASIC’s industry-wide review. In fact, WealthSure probably got a better deal than some of the other dealer groups which were on ASIC’s radar in the last couple of years. 

In March this year, another WA-based dealer group – Addwealth Financial Services – had its Australian Financial Services Licence (AFSL) cancelled, mostly due to the failure to meet some of the compliance requirements set earlier by the regulator. 

Only days later, ASIC cancelled the AFSL of AAA Financial Intelligence, principally because the group didn’t have proper compliance processes in place, or systems to monitor and supervise its planners. 

In August last year, WealthSure and ASIC began a series of meetings to discuss and address the regulator’s concerns arising from its investigation. 

Following these meetings, WealthSure began its own investigation into its compliance processes and operations, reviewed its authorised representatives, and appointed new staff to key management roles. 

The group also provided external training to its compliance staff and changed compliance reporting arrangements. 

Furthermore, WealthSure voluntarily commenced a technology-based risk and compliance management system, established a new audit and risk management committee and established a practice management program called the Adviser Academy. 

Finally, around 100 authorised representatives were removed from WealthSure’s licence. 

“We had 350 advisers and there were a number of them that [were] ... either small producers or there wasn’t a proper alignment in terms of where we saw the business going,” said the group’s newly appointed chief executive officer, David Newman. 

Newman was first brought in as a consultant to help the dealer group address ASIC’s concerns, but was later appointed chief executive officer, with former CEO Darren Pawski shifting to the role of managing director. 

Newman told Money Management the decision to remove approximately 100 advisers from the group was so that it could appropriately and adequately focus its attention on the remaining authorised representatives. 

“There were some advisers there who regrettably left. I have to respect that that’s their choice, but with the majority of those who left there wasn’t that cultural or business alignment.” 

In the EU document, ASIC acknowledged WealthSure’s full co-operation with the regulator in relation to its surveillance and investigations. 

“ASIC further notes WealthSure has been proactive in its dealings with ASIC in proposing solutions to address ASIC’s concerns,” the regulator said.  

The enforceable undertaking 

Under the EU, WealthSure was obliged to engage with a compliance expert by 6 September, who will review the group’s books, interview past and present employees and undertake a detailed review of its compliance framework. 

The consultant – Pathway Licensee Services – will also help WealthSure draft a Remediation Plan by 20 December, 2013. 

The plan will need to be submitted to ASIC by April next year and, subject to the regulator’s approval, adopted and implemented thereafter. 

The independent expert will provide interim reports to WealthSure on a six-monthly basis until 2016, then on a yearly basis until 2018.  

Darren Pawski 

When Newman stepped into the role of chief executive officer to replace Pawski earlier this year, the latter assumed the role of managing director. 

However, after ASIC found he was “instrumental in WealthSure’s multiple compliance failures”, Pawski offered his own EU. 

Under the EU, which was accepted by the regulator, Pawski will stop providing financial services for good, and permanently refrain from managing any AFSL, including WealthSure. 

He will not exercise or attempt to exercise “any influence over WealthSure’s...shareholders or new senior executives,” ASIC added. 

ASIC also acknowledged Pawski’s full co-operation in its investigation. 

He will, however, remain a shareholder in WealthSure. Pawski is an associate of the Pawski Family Trust, which owns two thirds of WealthSure and WealthSure Financial Services issued capital.  

Future of WealthSure 

Speaking to Money Management, Newman said ASIC’s concerns were never about the advice that had been given, but rather about WealthSure’s ability to have robust processes and monitoring systems in place. 

He said the compliance culture would allow the business to turn itself into a robust business, “as it should have been”. 

“Over the course of six to eight months we’ve done an enormous amount in the business so far, really positioning it for the next three to five years,” Newman said. 

“The business has no debt, it’s profitable, it’s got good cash-flows.” 

The group going forward, he said, will be about quality, not quantity. 

This is why WealthSure removed the 100 advisers from its licence, and he is confident there won’t be a planner exodus from the group. 

“The EU is a positive in a sense that it provides transparency and provides a framework for the organisation to work in,” Newman added.

“Advisers should be confident that there is that robust framework in place and that we’ll have that sustainability in the future.” 

In his interview, Newman flagged possible growth plans, saying initiatives like the Adviser Academy would help the group attract like-minded practices. 

“We are very confident in the business going forward – is it going to be hard? There’s a lot of hard work ahead. 

“But there’s a lot of wonderful opportunity in the non-aligned space, and that’s where we want to continue to focus. 

“We want a strong, respected, non-aligned dealer group but I know we have to work hard to earn that respect.” 

WealthSure has appointed a new state manager for Queensland and hired an experienced professional in the adviser services area. Newman said one compliance staffer was replaced, but a few more hires in this area had already been made. 

The group’s Adviser Academy is a program which would initially run for 12 months and is designed to help financial planning practices understand their business and where their value lies. 

“It starts with doing a diagnostic on their business, to help them understand where their business is; it will help them do some analysis as well,” Newman said. 

“Then we can help them through that analysis by determining their value proposition, how they pitch it, how they embed it in their business, how to price it and how to actually get a service proposition out to their clients.” 

Newman said while most advisers aligned with WealthSure were excellent at what they do, many did not know how to successfully market their practice and develop the business. 

“It’s about soft skills – how to build referral systems and market themselves – some people are just not good at that,” he added. 

WealthSure spent the last several months working with an organisation to build the technology around this program, which it said would also help and encourage advisers to adopt a holistic financial planning model.

Court battle over client claims

Before the announcement of the EU was made, WealthSure had already appeared in media headlines due to its ongoing court battle over a client claim. 

Two former clients had sued the group and its former adviser David Bertram for $1.7 million each relating to losses as a result of investing in property development group Neovest and investment house Norton Capital. 

The judges ruled against WealthSure and Bertram, but the matter is currently still before the Federal Court under a so-called 'stay of execution'. 

According to the judgement, Newman stated that if WealthSure's appeal wasn't successful it would have to pay some of the claim and associated costs from its own funds, which could close the group altogether. 

However, Newman told Money Management there were no concerns over WealthSure's financial stability and outlined what had happened. 

WealthSure's professional indemnity (PI) insurer QBE and the lawyers representing the insurer - as well as the group's lawyers - believed the judgement was manifestly wrong and were progressing to appeal it. 

"But because the judgement had been handed down we had to deal with that judgement and get a stay on it," Newman told Money Management. 

"The challenge we had was over that 24-48 hour period. QBE were unable to give us certainty around it in the event we weren't successful with the stay - they couldn't give us certainty that they would pay the moneys out, because they wanted it to go to the appeal. 

"The business would have to then make a decision, or at least give consideration, in the event that the stay wasn't granted and that $1.7 million had to be paid quickly, in a matter of days - whether or not the company had the capacity to do that." 

Newman said WealthSure's shareholders had later decided that the company could pay the money, but that it would have taken more than just a few days, as it was ordered by the court. 

"That's where the solvency issue came about." 

Newman said all client claims that WealthSure is currently dealing with were historical in nature and that the new strategy would help the group avoid them in the future. 

"The other important thing is that ASIC was fully aware of that claim issue - they're fully aware of our financial position and our ability to remediate clients," Newman said.