As the financial services industry today mulls over the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it would do well to consider not only the targets the Royal Commission hit but also those targets it missed.
It is an unfortunate reality of all Royal Commission exercises, particularly those working to a time-frame, that for as many of the issues which have been identified in Commissioner Kenneth Hayne’s final report, there have been plenty of instances of misconduct which have been missed.
Many financial planners will argue that the industry funds were not subjected to enough scrutiny, particularly where the sole purpose test is concerned, while others might argue that the Royal Commission failed to target the right senior executives within the major banks and insurance companies with too many department heads being represented by their deputies.
Still other critics might argue that the Royal Commission failed to traverse some of the outstanding issues relating to the collapse of Trio/Astarra, not least the role of the regulators and some industry representative organisations.
But, arguably, the Royal Commission has hit many serious targets including the corporate machinations which led to fee for no service, the inherent inappropriateness of out-going telephone-based life/risk sales and the inherent conflicts which exist for superannuation funds operating within large, vertically integrated structures.
The Royal Commission also successfully identified the shortcomings of the financial services regulators, notwithstanding the energy they have been seen to exhibit since the start of public hearings in March, last year.
That energy has seen the Australian Prudential Regulation Authority (APRA) initiate action against IOOF Limited while the Australian Securities and Investments Commission only today announced further measures against Commonwealth Financial Planning under the terms of an enforceable undertaking.
However, the regulators must be judged on what they did or did not do before the Royal Commission, not after. Further, those firms they are now seeking to pursue must be judged in terms of the relationships the regulators encouraged before December, 2017.
In the end, the impact Hayne’s recommendations will make on the industry will depend in large part on how many are actually actively implemented by the Government of the day, and by what means. Both sides of the political fence know that it would be political folly not to accept and act on Hayne’s final report, no matter how painful that might be.
Comments
The only difference with this RC and the unions RC is that they could give a one finger salute to the recommendations and just get back to being corrupt. They don't have a moronic regulator who is biased and will enforce via blood if necessary.
Totally agree - clearly Hayne has no confidence in his fellow Royal Commissioner who looked into Unions, otherwise after they were labelled as 'corrupt, liars, thieves, perjurers, bullies and thugs'. Wouldn't you ensure your own enquiry into super would look long and hard at those funds and the use of all that wealth run by those already branded as unfaithful and untrustworthy - the unions?
With an election around the corner and both sides of politics trying to outdo each other, it could be that the Banking Royal Commission is set to be the first ever Royal Commission whose recommendations are fully implemented.
Without doubt much in the Royal Commission’s recommendations is going to have a serious impact on the financial services industry. It is all very complex and in looking at this I go back to a debate; think was held at the LSE some years ago. The question was, why do bankers earn more than nurses? There is a logical and credible argument that nurses create a lot more wealth than bankers do. The difficulty is in the metrics of measurement but the basic point was that nurturing a citizen back to health can deliver far greater economic benefits, to society, than anything a financial planner, banker etc could do.
In my view the Royal Commission may be the beginning of a paradigm shift, in that society is beginning to realise that financial planners, brokers and other so-called financial professionals are overpaid.
If the Royal Commission’s recommendations are fully implemented it will reduce the income of financial professionals. This is not necessarily a bad thing if it results in simpler advice and preventing advice being sold to people who do not need it. The economic modelling is really complicated but if, in the future, being a financial planner means you earn less the chances go up that you might do something else like become a nurse or a teacher. It is not all bad news if the new regime is transparent, financial products are not overly complicated and most importantly of all there are serious consequences for ripping people off.
And ripping people off is not just about a financial adviser giving dodgy advice. It is also about banks using computer algorithms and actuarial type techniques to analyse their customers behaviour, not to help them but to work out ways to make more money. Doing such a thing is fine if the customer benefits but often the banks are doing this knowing full well there is no benefit to the customer whatsoever. I believe it is this sort of thing that allows bankers to earn so much and it is this sort of thing that needs to be dealt with and shut down. It will hurt the financial services people as the reality sinks in that their earning capacity may permanently decline. No need to cry, however, there are many professions and job roles in Australia where hard-working Australians earn very little.
Unfortunately you would fail economics with your comment. The reality will be that financial advisers who have the intelligence and competence to meet the new financial adviser education requirements will make even more money. Thousands of advisers will be wiped out over the next five years. Therefore the supply of advisers will fall relative to the demand for advice. This means the price paid for advice will rise significantly.
Tony, I understand your comments, but I do not see education as the main issue. It is compliance and the additional cost that will be passed on to the client. Sure, their will be less Advisers I totally agree. the demand for advice will still be there if not increase I agree. The cost to serve will be increasing and to assume that once your meet the new education standards life will be clear sailing from there is missing the point - ASIC is out to regulate Advisers out of business via Education, via BID, via limiting fees from Super, via BID and BID will turn into an exercise on how much you can actually charge the client in their best interest. I suspect it will not stop - never has. But I like your optimism and hope you are right. If you have studied Economics you would know that the biggest threat is regulation.
I wonder how much the banks and insurers paid Kenneth (sell out) Hayne to find in their favour and eliminate the independent mortgage brokers and independent insurance advisers so that they could further corner the market and eliminate the only people who ever worked in the clients best interests in the first place.
Totally agree. The obvious cause of the problem is the conflicts of interest associated with a vertically integrated business model. The fact that separation of financial advice from the product manufacturer was not recommended means the problems will continue once the dust settles. I wonder if the fact that Industry Super Funds are vertically integrated had anything to do with the reason why Hayne did not recommend an end to this business model. Industry Super Fund advisers only ever recommend their own product but apparently this doesn't matter.
I like John's input but he conveniently overlooks say fund managers and dare I say lawyers as being potentially "overpaid" - using his arguments that if the law was simpler we wouldn't need expensive lawyers to navigate it - but het no conflict of intertest there John.. Russia tried paying doctors the same as bus drivers. Not saying it couldn't work here though.
This RC hurts the providers of advice trying to put food on the table, its hurts the end consumer as advice has become even more expensive and further out of reach for the consumer. The tail-end of town continue to be abused and hurt by the big wigs financial greed. The sad part of this RC is that no executive of the big banks will ever lose their job, lose their house or face criminal charges, while it was them who demanded sales staff do whatever it takes to keep shareholders happy, and from this they'll continue to line their pockets.
Look at the appreciation of bank stocks today, while the likes of MOC/AFG plummeting 25%. While I disagree the commission structure for mortgage brokers, the recommendations only hurt consumers while the banks must be rubbing their hands together. Any chance of removed commissions being rebated to the consumer or reduced mortgage rates....no chance!!!
Industry funds got off light, however they can continue to deduct advice fees from MySuper products for providing intrafund advice - how does that work?
Kenneth Hayne is puppet at the hands of the big banks and industry super. Both political parties have won here, with the RC limiting recommendations against their biggest supporters, and ensuring funds flow into their coffers.
Let me reflect we have a RC and the outcome is....., A Senior Board Member who works in a Bank or AMP who gets paid what I make over my working lifetime in a year gets sacked.....only to be replaced by the same type of person...who then will likely get sacked again... I don't really think that's a good outcome.
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