Tuesday, February 5, 2019

Today by Paddy Manning


Coalition feels the Hayne pain
The banking royal commission is done. Over to you, parliament

AAP Image / Kym Smith

Most Australians desperately want the major parties to work together to come up with solutions for the country’s woes, and a rare opportunity has presented itself with the final report of the royal commission into the banking sector. Treasurer Josh Frydenberg has committed to “take action” on all 76 recommendations – although the government has baulked [$] at one, the proposal to abolish the up-front fees that are paid by banks to mortgage brokers. The shadow treasurer, Chris Bowen, has committed to implementing all the recommendations, and accused the treasurer of using “weasel words”, but on RN Breakfast this morning also made a “good faith offer” to sit down with the government and prioritise recommendations that might be legislated before the federal election.

The treasurer is yet to respond, and already this afternoon Opposition leader Bill Shorten is flagging [$] that the response to the royal commission could be a “big issue” in the upcoming election campaign. Given how the inquiry has galvanised the community, and the banking industry itself has admitted fault, it will be a pity if the window of opportunity for a bipartisan response has already closed.

There is zero political mileage in this for the Coalition, as was emphasised by the commissioner himself sitting in stony silence next to the treasurer, refusing a handshake. The government was simply too cosy with the banks: as the ABC revealed today, they were getting their riding instructions from them. Former prime minister Malcolm Turnbull has today admitted that the royal commission should have been called sooner. In the first debate of the 2016 election, remember, Turnbull argued that a royal commission wasn’t necessary, and accused Shorten of wanting to line the banks up “as though they’re all criminals”. Now almost everybody does, and there is widespread disappointment at the absence of any individual bank directors or executives being referred for criminal prosecution.

As Bowen said this morning and as Crikey’s Bernard Keane and Glenn Dyer write today, the royal commission report is a vindication Labor’s Future of Financial Advice (FOFA) reforms in the Gillard years (in fact they did not go far enough). By implication the recommendations are damning of the Coalition, which tried to wind FOFA back. Keane and Dyer call [$] on the government to apologise, “because in its commitment to the other 75 recommendations, the Liberal Party is finally agreeing to do some of things it fought tooth and nail to prevent Labor from doing in the FOFA reforms”. The Coalition is gradually closing the gap on Labor, according to today’s Essential poll in The Guardian, by focusing on Labor’s tax reforms.

Finance commentators disagree today over whether Hayne’s recommendations get to the heart of the conflicted remuneration problem for intermediaries (between banks and clients), such as financial planners and mortgage brokers, which has resulted in scandals like fees-for-no-service or loan application fraud. Alan Kohler describes [$] the Hayne report as both “eloquent” and “a failure”, adding that “his decision to not call for the separation of product and advice is both inexplicable and egregious”. Kohler cites UBS banking analyst Jonathan Mott, who says the recommendations “fell well short of market expectations” and none of them “will have a material financial impact on the banks”. Sure enough, shares in the big banks and AMP leapt this morning, albeit after weeks of heavy selling.

Today’s market relief rally may be premature. As I have noted previously, separating product manufacture from financial advice would not fix the conflict of interest, if the adviser continues to be paid commissions that vary depending on which product they recommend. The incentive to flog the highest-paying product remains. The incentive structure is the problem, not the ownership structure. The solution is to ban commissions, so the adviser is paid directly by the client on a fee-for-service basis, and impose on them a fiduciary duty, to act in the best interests of their client, like a lawyer or accountant.

That’s the direction Hayne has gone. As ABC business editor Ian Verrender wrote yesterday: “Rather than a radical overhaul … or a massive restructure of the system, the royal commission has taken aim exactly where it will hurt our major financiers. If the report’s recommendations are implemented in full, secret commissions, underhand payments and product pushing will be banned. From this point on, bankers and wealth managers should act in the best interests of their clients. The very fact that this principle has had to be forced upon the industry tells you everything that is wrong with the world of banking.”


GOOD OPINION

“The former High Court justice lays into NAB’s chief executive Andrew Thorburn and chairman Ken Henry, noting he was not convinced the pair had learnt the lessons of misconduct. In other words, Hayne is not persuaded that NAB is willing to accept the necessary responsibility for deciding what is the right thing to do and then have its staff act accordingly. It is a withering summation that should give both cause to consider their future.” the sydney morning herald

Gold Walkley winner Adele Ferguson AM, whose reporting helped trigger the royal commission.

BAD OPINION

“The Commissioner has expressed his view that we at NAB may not be learning the lessons we need to from the past and, in particular, that we don’t know what the right thing to do is. As the CEO, this is very hard to read, and does not reflect who I am or how I am leading, nor the change that is occurring inside our bank.”NAB

NAB chief executive Andrew Thorburn, responding to the royal commission report.

The Number

The number of individuals working in the financial services sector that the the Hayne royal commission referred to the Australian Federal Police or Director of Public Prosecutions for criminal or civil proceedings. READ on

The Policy

“Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards. Incentives have been offered, and rewards have been paid, regardless of whether the sale was made, or profit derived, in accordance with law. Rewards have been paid regardless of whether the person rewarded should have done what they did.” FINANCIAL SERVICES ROYAL COMMISSION

The list
 
essay

“An Australian life is currently worth $4.5 million and each year of premature death is worth $195,000. This number is not top secret – on the contrary, it is contained in a short and eminently readable memo entitled ‘Best Practice Regulation Guidance Note: Value of statistical life’.” The monthly

OPERA

“The production almost didn’t happen. Soon after the Melbourne-born Kosky began as artistic director of Berlin’s Komische Oper in 2012, he came under pressure to deliver a production of The Magic Flute ... ‘Guys, I think it’s a graveyard for directors,’ he told his board. ‘I just think it’s deeply problematic.’” The monthly

news

“‘It’s been a very torrid time, and I’ve been through a few,’ says one long-time party office holder. ‘This is the worst. People are choosing sides. People are really disappointed with the way the Greens are presenting themselves at the moment.’ The fighting in the NSW Greens has been going on so long it’s hard to know where to start.” The SATURDAY PAPER

Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?

 

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