In 2007, Trent Daly and his wife took out a loan to invest A$2m in the risky Guaranteed Portfolio Service (GPS) after his colleagues at the bank wrongly advised him that the products were ‘capital protected’ so that he would be able to recoup the full initial investment.
He also claims they advised him that he would be a suitable candidate for the investment.
Despite working as an exective financial planner for Westpac at the time, Daly said he didn’t understand the risks of investing in GPS as he had never given advice on structured financial products.
He now works as a private client adviser at wealth management firm Shadforth Financial Group.
Westpac has hit back at the claims, arguing that during his time at the bank, Daly received "detailed training" on structured investment products including the GPS scheme. The bank has vowed to defend the matter.
"In this role he received detailed training and achieved accreditation for structured investment products including the GPS product,"
"Daly invested in this product as a 'wholesale investor', a term used to identify sophisticated investors," said a Westpac spokesperson, reported Australia's Financial Review.
Zero coupon bonds
As the global economic crisis hit in 2008, the GPS funds, which were initially actively managed, were then rolled into a passive asset portfolio made up of ‘zero coupon bonds’ that do not pay out returns until they mature.
That same year, the couple took out mortgage with Westpac to buy a $1.7m family home, without realising the mortgage was secured by their GPS investment.
In 2010, the bank allegedly demanded a payment of A$200,000 for the outstanding mortgage loan, warning Daly that his home was at risk.
Daly said he could not exit GPS until it matured in 2012 due to a A$250,000 early redemption fee.
As a result, the adviser is now taking Westpac to court and demanding more than $800,000 after claiming that GPS was a highly risky and unpredictable financial product which did not suit his borrowing profile. He has also filed to stop the bank from enforcing the mortgage payment.
He added that his colleagues failed to advise him about the zero coupon bonds and the substantial early redemption fee.
The case is the latest in a series of lawsuits brought against Australia’s biggest banks for providing misleading financial advice on structure products.
Although the bank no longer sell the products, in 2012, Westpac was forced to pay two investor A$380,000, after two of its advisers were found guilty telling them that GPS products were similar to a protected equity loan.
Last month, HSBC Bank in Australia reached a deal with industry regulator, the Australian Securities and Investments Commission (ASIC), to compensate clients who received “potentially deficient advice” on retail structured products sold between January 2009 and March 2013.