The Royal Commission

The Royal Commission has provided riveting viewing for those of us who are interested in such things. It has already taken some big scalps, including the Chair and several board members of AMP.

It has also highlighted some unsavoury tactics employed by some of our largest and best-known financial institutions, although I suspect some of these may be due more to archaic software systems and the institutions’ inherent bureaucratic structure, than to deliberate bad intentions by their senior people.

Today the winners are the lawyers, whose offices are working overtime to provide the torrent of information the Commission is demanding. And the losers? Mostly shareholders in big financial institutions – especially AMP – which includes all of us who have money in superannuation, as the prices of many blue-chips tumble.

But this begs the question of whether it is all worth it. Yes, the Commission is highlighting a tiny minority of seriously incompetent financial advisors, but the only reason they were exposed by the commission and not much earlier is because their own industry bodies were more concerned in protecting their reputation than acting on the complaints they had received.

Outcomes for aggrieved clients could have been much better if the financial advisors’ own industry bodies took a lot more notice of complaints. There is a wonderful book, The Gift of Pain by Paul Brand, which points out that discomfort, in any form, is a warning signal to the recipient that something needs to be fixed. It’s about time these bodies regarded complaints as a gift, and not something to be ignored. And it’s not just the industry bodies – I hear the Commonwealth Bank is currently taking up to four years to respond to a complaint.

The Commission has also brought to the surface some unconscionable tactics by the banks. For example, NAB were found to have been charging risk fees of 1.05% for investments in cash – the same as they were charging on riskier, market-linked investments. That’s a shocker! Where were their research and compliance people? They are the ones responsible for approving these types of fees before any product makes it to their Approved Product List.

It was great to see a spotlight shone on the banks’ atrocious treatment of farmers in trouble, but it was old news. Politicians like Bob Katter have been complaining about this for years – it shouldn’t have needed a Royal Commission to give it further publicity.

But is any real action being taken?

I have been complaining for years about the scandalous conduct of the banks in charging default interest. Yet the latest bank statement for a small business loan I have is still showing Annual Rate 6.44%, Default Interest Rate 9.44%!  What country could countenance a system where a person who is struggling to meet their interest repayments is hit with an effective 50% increase in their interest bill as soon as they get into trouble? To the best of my knowledge, the Commission has been silent on this.

The big question is whether the leopards are going to change their spots. It’s been four years since ABC’s Four Corners publicised questionable practices in the Commonwealth Bank’s financial planning division. Have they reformed? No. Similarly, a report obtained by the Financial Services Commission reveals that ASIC have been fighting with NAB for nearly 15 years about NAB charging fees when no services were being given. Unless the regulators are given teeth – and then have the fortitude to use them – the Commission will turn out to be a complete waste of time and money.

I see a real risk that the main outcomes of the Commission could be tighter lending conditions, slowing down the economy, and more onerous compliance, slowing services and justifying higher fees. If the banks continue to act in bad faith, the long term costs of the Royal Commission may end up outweighing the short term benefits.