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No name advisers make the big time

Friday, March 19th 2010, 12:45PM 4 Comments

by Philip Macalister

In the past fortnight two advisers have hit the mainstream headlines for their dodgy operations. Stephen Versalko, the former high-living ASB adviser, has dominated  headlines over the past 24 hours with his unbelievable spending on hookers and nice wine. A week before, the Herald wrote about Mike and Jackie Bradley. I’ve been pondering these and it seems that both advisers have been living the high life in Auckland and spending their ill-gotten gains Secondly, neither of them are names that have been well know in the advisory industry. In some ways you expect the advisers who have done well to be known by other advisers. You expect to see them at events like IFA conferences and roadshows. Yet our enquiries suggest that both had almost no industry profile. Another thing, and one which is concerning, is that both advisers had, let’s say, “interesting” approaches to documentation. Reports suggest that the Bradleys had no records at all and the second had a set of highly doctored and controlled records. I do have to wonder aloud (again) whether regulation will help tidy these sorts of things up. As I said in the Weekly Wrap, if someone can work within a highly controlled environment like the ASB Bank and commit this level of fraud, what can be done to stop it? I think the answer is not a lot. If a person is truly interested in committing a fraud they will find some way to do it no matter how tough the rules and regulations are. The other side of the coin is that there just has to be better financial education for the public. The people who suffered in these cases should have been asking more questions and should know what sort of information they should be given. This may seem like a big ask, but one could assume, considering the sums of money involved, that the clients were successful and intelligent people who should have known better.
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Comments from our readers

On 19 March 2010 at 3:50 pm Mike Kinsella said:
The question has been raised regarding how Versalko seemed to so easily and for so long commit massive fraud at the expense of ASB Bank.In my view the opportunity arose in the first instance because ASB seemingly allowed its Investment Advisers to take funds from clients and process the transactions directly into ASB accounts.In this case Versalko obviously channelled the funds through to accounts not in the name of the client but to those over which he maintained control but not nesessarily in his own name.
I enjoy a long standing relationship with Spicers Portfolio Management Ltd.In all cases when I have money to invest,I am obliged to pay over the underlying funds to a nominated Trustee Company which in turns remits them to Spicers.This process removes the opportunity for Spicers
advisers or others to get their hands on the money.

It occurs that had ASB followed this procedure, Versalko would not have had the opportunity to be the perpetrator of this massive fraud.
On 19 March 2010 at 10:48 pm Frank said:
We saw Versalko out walking his dog with his wife and they looked like your normal married couple. I know he has broken the law and ripped the bank off but I guess he had a problem with addction to greed re money and apparently other things....six year in the klink will be tough for a white collar crim!
On 20 March 2010 at 9:27 am David Whyte said:
The general question of corporate governance and regulation remains an issue in NZ. The process of internal bank audit in Australia, for example, would more than likely have picked up the errant ASB adviser's practices. The question for ASB is this:- why were CBA internal audit practices not extended to their NZ subsidiary? The probable answer is cost-related and holds little validity in the face of subsequent events.
On the governance front, the pleas of ignorance by Banks and Brash over the Hujlich "failure to disclose" reveals more myopia and inertia on the part of regulators and their political masters with corporate governance in NZ.
The accountability distance between executive and non-executive directors in other countries is closing. Liability and responsibility is becoming the unavoidable duty of a company director - of whatever description - and the sooner NZ adopts this approach, the sooner we can minimise the opportunity for malpractice, fraud, and misleading actions which cause public grief.
The issue of expense will be raised again, but the cost of being in business contains fundamental responsibilities which have to be met, and meeting the cost of retaining competent, effective, and attentive directors should be one such basic responsibility.
It's true that you can't legislate crime out of the financial markets, but you can, with prudent regulation and sensible supervision, reduce the chances of success for opportunists, crims, and others intent upon scamming the public, or claiming ignorance in the face of inappropriate executive behaviour.
On 21 March 2010 at 9:23 am Independent Observer said:
It is appalling to read of prominent Hujlich Directors pleading ignorance, with the Regulator seemingly adopting the "oh well - no one was hurt" attitude. Where were the Trustees in this example (or the auditors in the ASB example)?

Both the Hujlich and ASB examples demonstrate poor institutional governance, below average Regulatory response, and a jaundice judicial structure (although I'll argue that point another day). 12 months ago I argued that the Morningstar summation of the NZ financial services industry was grossly out of line. Following these recent cases, I'm not so sure that it was.

For those industry participants who remain at ease with these recent breaches in client trust, you may wish to reflect on the damage that is being created for all of us. As an industry we should be aggressively lobbying the Regulators to uphold the principals of fiduciary responsibility for Directors and industry participants. In the absence of any collective voice (as the FPA appears to have lost its mojo), we are left to lobby individually.

It will remain a tough battle to reinstate industry confidence with consumers until the underlying virtues of trust and competence are reinforced by the watch dogs.
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ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
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Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
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Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
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Median 5.34 4.04 4.09 4.39

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