Sunday Sanity Break, 29 April 2018 - Financial Services Cleanup
Our brave government held off the much mooted Royal Commission for as long as they could. Looks like they were trying to protect their mates in the financial services business, as claimed by Labor. Anyway, once the commission started, with a highly competent Chief commissioner, the dam has burst. Criminal actions as well as merely breaking corporate rules and lying to the regulators. The big banks as well as the once-mighty AMP shown to have cultures that are rotten to their cores.
Here are some explanations and questions.
* AMP's rotten culture is due largely, in my view, to an over-ambitious board driving management to produce profits that exceed those that can be made legally. Greedy board members and greedy staffers have conspired to rip off customers, including dead people. What were the executors of wills doing, one is forced to ask.
* The big banks also succumbed to greed, a modern vice that pervades modern corporate cultures everywhere. Urged on by greedy boards, whose members are paid far more than would be needed to show up. Ditto for senior executives. Encouraging conspiracy to defraud customers.
* Banking strategy that tried, without success, to include 'wealth management' in its corporate structure. 'Wealth' was promoted by inhouse asset management businesses purchased at excessive prices. Poor 'wealth management' of bank customers was compounded by ridiculous promises for management teams that by definition could not all be better than average, and inexpensive index funds were almost never recommended.
* Unqualified 'Financial planners' were paid fortunes to recommend the inhouse managers. Obviously dud Financial planners fired by one institutions were readily re-employed by another and almost none were ever taken to court by relevant regulators.
* Timid or merely lazy financial service regulators. What were they thinking? Almost no legal cases, and clearly any attempt to punish incompetent 'wealth managers' or managers of teams of such people were mostly abandoned.
In short, a massive mess that needs stern repair. This is a long-term problem. Look at the pattern of bank lending, which since the 1980s has exceeded GDP growth by large amounts. Here is a warning from 2007.
Henry's final full-time corporate job was to run a 'wealth management' business for one of the major banks. The main achievement was to introduce a suite of 'best of breed' asset funds, or blends of funds, recommended by the global actuarial company, the USA-based Frank Russel company. This mob not only managed the choice of fund managers, which (of course) did not include the very ordinary inhouse' group, and few if any Australian managers. They also re-trained our financial planners, who adopted the new approach with conviction. Customers loved the new approach and funds under management grew strongly.
I told the board the new vision statement was 'Customers'. Such a slogan was unusual then (20 years ago) but is creeping in now, although mostly, I assert, without conviction. After one board meeting one old fellow came over to make a comment. 'We at the bank know about customers. Our strategy is to get every last drop of blood from every last customer'. I assumed he was being ironic.
Soon an expensive consultant concluded that the wealth management business should be absorbed into the banking structure. I resigned and almost immediately and the Frank Russel collaboration was abandoned. The bank concerned tried many other approaches over the years, but never again found an approach that worked.
The weekend Australian says on the front of its business section 'Banking royal commission. Kenneth Hayne signals end of wealth model'. At last, gentle readers. Praise the Lord and pass the brandy.
Here is a quote: 'Reflecting on the evidence presented over the gruelling two-week stretch of hearings, which included financial advice failures at CBA, Westpac, NAB, ANZ and AMP and advice subsidiaries, Mr Hayne said there were “at least three elements at play” that could explain how the structure of the industry factored into the horror stories heard in the inquiry.
“There are product manufacture, product sale, advice, and the way in which those three elements either fit together or don’t fit together according to both existing firm structures,” Mr Hayne said.
'He said another issue was the effect of internal measures including remuneration, culture, rewarding good conduct, penalising bad conduct, monitoring and detecting departure from what is seen as desirable.
'Last, external measures such as ensuring compliance and enforcing compliance at a company would have to be appraised'.
Now (Mayday) former APRA chief, John Laker, weighs in with his report on the Commonwealth Bank. Press reports use words like 'complacent'. reactive', 'insular': I add 'incompetent', 'greedy' and 'would we be surprised if deeper digging found gross dishonesty'?
Adam Creighton reports: 'Well who would have thought? A massive, taxpayer-guaranteed, ex-government utility with at least 500 executives is complacent, overly complex and bureaucratic, and top managers pay themselves huge “bonuses” with little downside risk.
'These are the shock findings of the 110-page prudential inquiry into the culture and governance of Commonwealth Bank, released yesterday, with the inquiry prompted in September by allegations the bank turned a blind eye to systematic money-laundering through its “smart” ATMs.
'It gets worse. “CBA has not set aside the requisite space, time and permission for quality reflection, introspection and learning,” the report said, suggesting “there is little evidence to suggest that reflection is a skill that is widely valued in practice. In fact, there appears to be a genuine lack of appreciation for its importance”.
'Tell me it isn’t true.
'As writer Tom Dusevic put it yesterday, “more poetry and long walks would fix CBA says APRA”.
Fiona Prior watches the loaded transition of Malcolm to Catherine Elizabeth in Sydney Theatre Company’s Still Turning Point: The Catherine McGregor Story. More here.
So sad. Caaarlton! beaten again, to establish a new low point. It is the first time in this once great footy teams life (well over a century) that it has lost the first six games. A young Bullies team looked beatable, and some commentators saw promising signs in both teams.
The only other game I watched saw Swans, without Buddy, battling Geelong. For much of the game Geelong were on top and seemed to be cruising to victory. A late resurgance however saw a stunning win by the Swans.
Exciting 'futball' (soccer) games this weekend plus sad news that Timmie Cahill has played only 63, or is it 65, minutes for his new club. Very hard to fit him into the team for the world cup, but I hope he makes it. The odd 15 minute burst might allow him to win a game or two. He is a magician.
The Israel Falou affair continues to bubble. Fix it, please ARU admin. Do you really want to go without him to play All Blacks, England, even Wales, without him?
Image of the week
Courtesy Clement in The Australian