Back to where it started.............

IOOF's boiler room throws customers to the wolves

20 June 2015

Adele Ferguson and Sarah Danckert


As Christmas parties spilled onto the side streets of Sydney's CBD, two men from listed financial services group IOOF were not in the mood to party.

One of the men, a senior equities analyst, was about to become a company whistleblower, a move that would expose another financial scandal and cost him his job

It was Friday December 12, 2014 and the other man, the company's head of investigations Rob Urwin, wanted to discuss a few matters before heading home

The conversation turned to some questionable behaviour inside the company, most notably its research division and some of the antics of its head of advice research Peter Hilton, so Urwin suggested the discussion continue over a beer.


As they settled in at the Shirt Bar, discreetly tucked away in an alley close to the company's Kent Street offices, topics moved from IOOF's aggressive sales culture to some possible serious breaches in the research division, which is the engine room of IOOF's $150 billion funds under management

"I was pissed off yesterday," the equities analyst told Urwin, explaining how the company's equities team wanted to start ramping financial advisers into stock ahead of a research report being issued.

"[The equities team] was told it is time to call the planners and I go like 'no it's not … the report isn't out yet so what are you freakin' talking about'?

"You don't talk about a report before it comes out. You don't touch a report, you don't trade a report, you don't do anything to the report before it comes out. I was fuming. I couldn't work yesterday, Rob ... there's no rules around this team."


Front-running is illegal. It can occur when stock is bought knowing a research report is coming that could send the share price up and thus benefit the buyer of the stock.

Urwin appeared horrified. "He's [Hilton] forcing me to get my file out. My file is that high !!!! " Urwin said, gesturing with his hands to show that the investigation department's file into Hilton was enormous.


Fresh scandal

He was right to be worried. A Fairfax Media investigation into IOOF has sighted hundreds of documents and emails that embroil the former venerable friendly society in a series of financial planning exposes, including the Commonwealth Bank, which in that case involved fraud, forgery, a cover-up by management, and low-ball offers of compensation to clients. Fairfax Media has also exposed widespread cheating on professional exams at Macquarie Group and a scandal at National Australia Bank, which in that case included forged client signatures, file reconstructions, poor advice and compensation payouts to those clients who complained long and loud enough.

This IOOF case included elements of many of those scandals and underscores the myriad problems plaguing Australia's financial advice industry. It is why a Senate inquiry last year called for a royal commission into CBA and a wider investigation into the rest of the industry – calls that the Abbott government has so far ignored.

IOOF was formed in 1846 as the Independent Order of Odd Fellows friendly society. By 2004 it had listed on the ASX and had a reputation as a serial acquirer of businesses. Its appetite for hoovering up funds management businesses then slashing costs earned it the nickname "Pac Man" and created one of the largest networks of financial advisers in the country. more




Chapter 2: Australia’s experience with failure and international experience with guarantees

2.8 The fragility of public confidence arising from failures in the banking sector in the early 1990s extended to non-bank deposit-taking institutions. The failure of Pyramid marked the most significant failure in this sector at that time. Pyramid was Victoria’s largest building society and Australia’s second largest. The Victorian Government ultimately ‘bailed out’ depositors at a cost to taxpayers of over $900 million, leaving other creditors and investors, including holders of redeemable preference shares to bear losses.


2.9 Pyramid’s problems had flow-on effects for other non-bank financial institutions in Victoria, with the highest profile case being the OST Friendly Society. Like Pyramid, OST was heavily exposed to the property market, and its problems were eventually resolved by a merger with IOOF (the largest friendly society)........... Pyramid’s difficulties may also have contributed to short-term deposit runs on the Bank of Melbourne and Metway Bank (former building societies). The runs stopped shortly after the Reserve Bank of Australia (RBA) issued press releases stating that the banks continued to meet prudential standards and were soundly managed. ...........