A scandal at financial services giant IOOF involving claims

BMA735 Management EthicsAssessment task 2: Case study 2IOOF Holdings (The Australian Financial Review, June 21, 2015 and ABC News, December 7,2018)A scandal at financial services giant IOOF involving claims of insider trading, front runningand “misrepresentation” of performance numbers raises issues about culture and theinsidiousness of vertical integration. Internal emails and documents obtained by TheAustralian Financial Review reveal breaches and errors in unit pricing in some of IOOF’s cashmanagement trusts. A July 2014 Risk and Compliance Committee (RCC) document preparedfor the group’s advice division describes an incident in 2009 were clients were paid toomuch in their cash management account, which resulted in clients since then “receiving adiluted 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 ofbreaches 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 PrudentialRegulation Authority (APRA) to supply all investment breaches and unit pricing errors inseveral IOOF Funds, including Questor and IIML. It lists 15 separate incidents between 2012and 2013. They include a Platinum Asset Management unit pricing error in late 2012 and aQuestor Cash Management Fund issue in September 2012, which over distributed to a fewinternal unitholders to the tune of at least $6 million.What began in 1846 as the Victorian Grand Lodge of the Independent Order of Odd Fellowsfriendly society has grown into a 650,000-customer listed company. IOOF controls $150billion of investor funds and uses almost 1200 financial planners who struggle with ahotchpotch 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 throughacquisition, including buying Bridges Financial Services, Shadforth, Lonsdale and a majoritystake in Ord Minnett. The merger frenzy has made IOOF the second largest non-bankfinancial 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 thesame time, costs have been slashed to help boost profit margins – and bonuses. As formerstockbroker and fund manager Mike Mangan said, however: “It seems the whole financialservices industry, with rare exceptions, is unethical at best; corrupt at worst. Occasionallysomeone with ethics comes along like an IOOF whistleblower. And they get fired for theirethical stand.”