ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY
By Paul Nicol
The second round of public hearings into Misconduct in the Banking, Superannuation and Financial Services Industry commenced last week on Monday 16th of April and it is fair to say it was not a good week for the reputation of the financial planning industry.
The spotlight was well and truly focused on the quality of financial advice provided by Australia’s bank owned financial planners and AMP. Headed by former High Court judge Kenneth Hayne, the Royal Commission has uncovered a shocking rap sheet of misconduct – including fraud, deception and outright lying.
AMP was first to front the second phase of Royal Commission last week. Shockingly, it was exposed that on 20 separate occasions, AMP misled ASIC over charging fees for no service to clients of its financial advice business. One of Australia’s most trusted institutions, AMP had deliberately lied to the corporate regulator and had been aware of serious fraud but elected to mislead and misinform ASIC about the seriousness of its compliance breaches. By the end of the week, AMP’s CEO Craig Meller resigned, as the AMP share price slumped and public condemnation of such poor corporate governance emerged.
Next to front the commission was the CBA who were labelled the “gold medallist” in charging fees for financial advice it never delivered. Clients of the CBA’s Commonwealth Financial Planning and Count Financial businesses were charged ongoing fees for financial advice where no advice services were provided, mainly between 2007 and 2015. Incredibly, CBA identified the issue in 2012 but took two years to report this serious breach to ASIC.
In testimony, a senior CBA executive admitted it “had no idea what was going on” as it “grappled” with the problem of customers being charged for services they didn’t receive.
Later in the week, the story of Jacqueline McDowall emerged. In late 2015, Jacqueline and her husband lost their home and most of their superannuation after approaching Westpac for help in buying a $1 million live-in bed and breakfast to run in their retirement. Westpac admitted it paid bonuses to a financial adviser it knew was churning clients to generate extra revenue.
The breadth and seriousness of the breaches revealed in these businesses last week has led to calls – most notably from former Australian Competition and Consumer Commission chairman Allan Fels – for radical reforms forcing banks to sell these financial advisory and wealth management business. We couldn’t agree more.
From our perspective, the first lesson from the Royal Commission (thus far) is that these large financial institutions are not only too big to fail, but probably too big to manage. The banks have long argued that this malfeasance of advice was the result of ‘‘a few bad apples’’. But this positioning from the banks has become untenable as bountiful evidence is emerging that the banks and AMP simply have no idea how to train, supervise and monitor their financial advisers.
From afar, we (GFM) have long observed that at the heart of the issue with financial advice provided by the banks and AMP is their deeply conflicted financial advice culture. Executives and sales teams are overtly and covertly rewarded for churning financial products, and are often not penalised for risk and manipulation. Customers interests are subordinated as the financial planners of these institutions are rewarded for “selling” their own products. It’s shameful and should never be allowed to happen.
The Royal Commission continues this week where no doubt further shameful stories of conflicted advice will emerge, and truthfully, it is really hard to digest. It is sickening to think of the Mum and Dad investor, working hard and being diligent and aspiring to a comfortable retirement being provided suspect advice which is not in their best interests.
As all of our clients know, GFM is a privately owned financial planning and accounting practice. We are self licenced and our senior staff and directors own the business. Fortunately, we have no association or affiliation with any financial institution. We are a fee for service organisation and our advisers are salaried. Put simply, we have a deep imbedded culture of putting our client first as any professional should.
Senior Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 230876
Copyright: © This publication is copyright. Subject to the conditions prescribed under the Copyright Act, no part of it may, in any form, or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced or transmitted without permission. Enquiries should be addressed to GFM Wealth Advisory.