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8 problems the Royal Commission missed

Commissioner Kenneth Hayne and his staff have done a good job, and rightly, he now has an exalted place in Australian financial markets history. It's almost sacrilege to criticise, but either due to the limited time allowed, the mandate or his focus, the work was not perfect.

The lack of time was somewhat self-inflicted. Many months ago, as someone who watched maybe 100 hours of hearings, I became frustrated with the amount of time the Commission was spending on a few issues. I wrote this editorial on 10 August 2018:

"Okay, we get it, please move on. The Royal Commission is doing great work uncovering poor practices in financial services, but after nearly three days on superannuation, it had interviewed only one company. The witness list has 16 entities on it. We already know from Round 2 in April that there is a systematic problem with advice fees. I have listened to a dozen hours of the Commission this week and we have run around in circles with two MLC/NAB witnesses, and one has returned for more questions today on Day 4 ...

There's so much else it should address: performance reporting, fee calculations, rates paid on cash, valuations of unlisted assets, definition of 'defensive' assets (credit, property, alternatives), performance fees, active managers hugging the index, risk versus return, bid/offer prices, etc. And what about the dubious banking practices which have changed little in the 20 years since I wrote Naked Among Cannibals?

These issues will have more long-term impact on the vast majority of customer returns than charging fees for no advice or to dead people. I hope the Commission does not run out of time."

How Hayne rewrote the rules and achieved strong results

Hayne set new standards of enquiry which will lead the way for regulators. We knew something was unique from the moment the Commissioner aggressively pointed his finger at National Bank's counsel, Neil Young QC, who was questioning why his client needed to return the next day. Young had said, "On our instruction, her answer will be that she had no involvement in these matters." Hayne hit the roof.

"You will not give her her answer, Mr Young. You will not. Do you understand me?"

And barely a peep was heard from any QC for the rest of the year.

The Royal Commission struck gold with a simple approach. Prior to the commencement of hearings, financial institutions were given the opportunity to come clean with their past mistakes. Hundreds of pages of misdemeanors flooded into the Commission, and thereafter, the skilled QCs assisting Hayne played back the admissions before embarrassed executives. Rowena Orr's 'Let me show you a document' become a chilling phrase. Witnesses were forced to admit the sins of themselves, their companies and colleagues, and along the way, many did not survive. Sam Henderson, Terry McMaster, Chris Kelaher, Craig Mellor, Catherine Brenner, Andrew Hagger, the four majors, AMP, IOOF and many more became victims.

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Major issues missed by the Commission

Acknowledging the Royal Commission did a great job in shining light into dark corners, what did it miss, touch on or struggle with?

1. How banks price their products

Banks and other financial institutions offer a vast array of services. They are effectively the 'plumbing system' of the economy, especially in providing payment systems and intermediating between borrowers and lenders. Yet it is not difficult to find vital services which received little or no Commission attention.

Take the example of the way banks price their products. Why do the banks rollover the term deposits of existing customers at sub-market rates, forcing loyal customers to make a phone call to achieve a better rate? The vast majority can't be bothered or don't know the benefits, and what banks call 'retail inertia' makes a major contribution to interest margins. Why have credit card rates remained above 20%, when the poorest customers without the ability to pay off their cards each month suffer the most? Why do new customers receive lower mortgage rates than existing? Ross McEwan went to RBS in the UK after he missed the CBA CEO job to Ian Narev, and he said in 2014 that he found it,

"... absolutely abhorrent that you would give a new customer a better deal than someone who has been with you for 30 years."

I have written extensively on the subject of how banks price their products to protect profits, including in this article. For me, failing to address this was Hayne's biggest shortcoming, because it affects millions of Australians in their everyday banking. Instead, the Commission spent day after day on financial advice and issues such as 'charging fees to dead people' which impact a relatively small number of people.

2. Difficulty pinning down culture

The complex subject of 'culture' seems at the heart of the problem in banks, but like many before him, Hayne struggled to define and grasp it. The most common phrase in response to the Commission will be 'rebuilding trust', which is convenient because there's no real way to measure it.

In the Final Report, Commissioner Hayne said:

"Too little attention has been given to the evident connections between compensation, incentive and remuneration practices and regulatory, compliance and conduct risks."

But what to do about such a culture?

A significant problem is how to define community expectations. A leading law firm, Allens, told The Australian Financial Review that while Hayne was extremely well placed to opine on matters of the law, he had no special expertise in deciding a benchmark for community standards. Banks do not have one dominant type of culture, although Hayne said poor behaviour could be traced to the pursuit of profit over other purposes.

We have written more on culture here.

3. Accessing the financial advice that people need

It's well established that most people are unwilling to pay enough for financial advice to cover the cost of providing the full service. Many financial advice groups are thriving by servicing wealthy clients, willing to pay 1% or $20,000 a year for advice on a $2 million portfolio (and of course, much more). But charge 1% on $50,000 and $500 pays for two hours with a decent adviser, which is barely enough time to crank up the spreadsheet let alone have a decent conversation and produce the obligatory 70-page Statement of Advice.

The large banks addressed this problem by cross subsidising, selling their own products such as managed funds to help pay for advice. This led to the claims of not putting the clients' best interests first and favouring in-house products.

The end result of the criticism is banks stepping away from providing financial advice and fewer Australians having access to the services they need. Long-term planning and retirement incomes are likely to suffer as a result. Financial advisers do not only focus on investing, but they address aged care, social security entitlements, superannuation structures, estate planning ... on it goes. Is it better that the bank teller will send the bank client to the adviser in the office above the real estate agent, and hope the conflicts are less there?

The unclear mix of a sales culture with provision of financial advice confused the best interest duty of advisers for their clients. The revelations at the Royal Commission have further undermined public confidence in financial advisers, and are no doubt partly responsible for the outflow from retail funds to industry funds. But most industry funds have modest advice businesses, often focussed on limited or 'scaled' advice given the difficult economics of servicing members with low balances.

4. Fund commissions remain in certain sectors

Hayne has come down hard on commissions paid by product manufacturers to financial advisers, recommending a banning. But what about commissions by another name, such as paid by new issuers in Initial Public Offerings (IPOs) on the ASX? Commonly, the issuer will pay the lead broker and other brokers a 1% or more selling fee. Some brokers then offer this to financial advisers to sell the IPO to their clients, and while some advisers may reimburse it to clients, many do not. Why is a financial adviser prohibited from accepting a commission from a fund manager for an unlisted fund under the Future of Financial Advice rules and now Hayne's recommendations, when a Listed Investment Company from the same manager indirectly pays the adviser a fee?

5. Underestimating the competitive role of mortgage brokers

According to a Momentum Intelligence survey of 5,782 borrowers, 79% were not concerned that brokers are paid commissions by banks. The report, called Consumer Access to Mortgages, found 96% of people who use or intend to use a mortgage broker would be unwilling to pay the average upfront commission of $2,000 that banks pay to settle a mortgage. There was a perception among those surveyed (who may not represent the entire population) that brokers source the best loans and deliver the widest choice. Of course, the Royal Commission and some bank CEOs have offered different examples of brokers acting in their own best interests with poorly-structured incentive schemes.

If the service were not available, a competitive force would be removed with borrowers dealing directly with the banks with the biggest branch networks. A KPMG survey says mortgage brokers have helped reduce net interest margins of the banks by up to 20% in the last 10 years through increased competition.

In the interests of full disclosure, it should be noted that Momentum Intelligence is part of a media group that publishes titles aimed at mortgage brokers and real estate professionals. Nevertheless, with brokers now commanding a market share of mortgage origination of over 50%, it's easy to see how a ban on payments by banks to mortgage brokers will increase the power of the big banks.

In the Final Report, mortgage brokers will be subjected to a best interests duty and a ban on trail commissions from July 2020. Many brokers argue they provide a significant ongoing service, but Hayne rejected this, saying:

"The chief value of trail commissions to the recipient, to put it bluntly, is that they are money for nothing."

In the only exception to agreeing to implement all 76 recommendations, Josh Frydenberg said the Government would delay its decision on Hayne's call for upfront commissions to be banned and replaced by a customer-paid fee.

In response to the Final Report, Peter White, the Finance Brokers Association of Australia Managing Director, said,

"If a user-pays model was implemented, we know that most borrowers wouldn't pay, and banks would make more money and standards would drop further. It's very disappointing that the Royal Commission wants to destroy some 20,000 small businesses for the monetary gain of the big banks, and we trust the government will see clearly on this and continue to work extensively with our industry to improve consumer outcomes."

6. Industry funds escape detailed scrutiny

If the Productivity Commission recommendation on choosing the 10 'Best in Class' superannuation funds as defaults is adopted, industry funds are likely to dominate and their success will be further consolidated. Retail funds will struggle to compete. As the dominant institutional provider of retirement savings, Hayne should have explored some of the criticisms levelled at them more.

Instead, we are left wondering if the claims of competitors such as retail funds have merit. Examples include the methods used to value unlisted assets, which carry a higher weight in industry fund portfolios than in retail funds. The role of union members as directors of the boards of industry funds and the extent to which their board fees are paid to their unions and ultimately to assist the Labor Party, was overlooked. There was some scrutiny of entertaining at major events and industry funds spending millions a year on The New Daily publication, but the not-for-profit sector enjoyed the Royal Commission.

7. Financial advisers have a right to charge 'fees to dead people'

It's a great headline and the type of phrase people can easily recall, and on the surface, it sounds terrible to charge 'fees to dead people'. But the profession (the legal people at the Commission) arguing financial advisers should not victimise dead people is the same profession that often charges 'fees to dead people'. When a lawyer handles the will of a dead person and helps to administer the estate, do they do so with a feeling of sadness and benevolence and not charge fees? Of course they don't, it's a major part of many legal practices.

Financial advisers often have considerable work involved with an estate. Accounts remain open until probate, the process of proving and registering the will of a deceased person with the Supreme Court. When a person dies, many people are involved with their estate, and the executor of the will administers the estate and handles the disposal of assets and debts. Is the financial adviser the only one who is not supposed to be paid?

8. Lack of financial literacy taught in schools

At the heart of many issues uncovered by the Royal Commission is a community with poor overall financial literacy. Many people do not know which superannuation fund they are in, its cost and features, they pay for insurance they don't need or can't claim on and hold multiple accounts with duplicate fees. They carry credit card debt costing 20% and buy properties off-the-plan from spruikers.

Okay, this was a 'misconduct' Commission, but with both the Government and Opposition promising to implement recommendations, it was an opportunity to direct funds to education and help better-informed people make educated decisions and reduce the misconduct opportunities in future.

Finally, back to the earlier point, what about ...

... performance reporting, fee calculations, rates paid on cash, definition of ‘defensive’ assets (credit, property, alternatives), performance fees, active managers hugging the index, risk versus return, bid/offer prices, etc. 

Feel free to add any comments on other issues the Royal Commission could have addressed.


Graham Hand is Managing Editor of Cuffelinks.

January 01, 2020

Just an interesting point I would like to make ! I recall couple of years ago a fin adviser; after a brief look at our fin situation; saying she could get us a part aged govt pension. I was skeptical of that considering our super funds levels. Other friends and colleagues using fin advisers have told me that their advisers very much focus on manipulating and spending down the amounts they have so they then qualify for aged govt pension. Other comments appreciated.

Andrew Goldstein
February 17, 2019

Completely agree with your point about advisers and the difficulties of managing estates. Cutting off the adviser at that critical time leads to very poor outcomes all around.

February 17, 2019

Graham and Andrew,

From working within the super industry the problem with adviser fees being charged to dead people is not anyone arguing there isn't a need for the service, far from it but rather who should pay for it.

Super funds have their fiduciary obligations, sole purpose test compliance and that a number of parties may be in line for the monies represented by different advisers.

The ultimate beneficiary is not always represented by the established adviser on the account so why should someone else's advice be paid for from monies they are not entitled or only partially?

All well and good if the adviser is actively representing the ultimate beneficiary but not when advisers go missing or other parties are determined to be the beneficiary.

Graham Hand
February 17, 2019

Hi Think, why is that any different from paying legal bills? Everybody accepts lawyers should be paid for work on the estate and super. G

February 17, 2019

Financial advisers can be paid from the super monies, once a person is determined to be the beneficiary.

They can be paid from the cash proceeds or from the beneficiary's own super account once they roll the death benefit over.

The super industry treats lawyers no different although the payment will always be once the monies are outside super and some law firms work for free until the super claim is finalised.

Perhaps I have misunderstood your comments in the article and you are just saying it is hypocritical and not that super funds should continue to pays ASFs once notified of death. I am not familiar with how law firms bill estates but rather how a super fund interacts with law firms and advisers.

Gary Biden
February 16, 2019

Regarding term deposits, you get seven days to make up your mind. If you care about your money that is plenty of time to decide. If you know you will be away you can leave instructions to do whatever you want with the money. You cannot blame the bank for people’s laziness. As for credit cards, you can get lower interest rates than 20%

February 14, 2019

In relation to mortgage brokers, I was surprised that Matt Comyn's commenting there are 1,300 mortgage brokers being paid more than $1m per year by CBA was not probed more. Presumably these brokers also receive commissions from other banks; or somebody should question why they were only selling CBA products.
His comment was very damaging to mortgage brokers (note: I am not a mortgage broker)
What is the split of up-front vs trails for these brokers? Are these commissions only from mortgages or are there other products involved? Does CBA pay volume or campaign bonuses to mortgage brokers? Are these million dollar + brokers 'individuals', or are they 'businesses' with multiple brokers and other employees under their name? A Deloitte/Access Economics survey said average sole-trader broker income was ~$86400 in 2017, far below $1m, why is there such a difference?

Jon Kirkwood
February 10, 2019

The quality of financial advice took a big dive when Chartered Accountants "CA's" were disenfranchised from giving advice to clients. CA's are usually in an excellent position to know their client needs and are bound to give advice that puts the client first. handing over the right to give financial advice to persons who do not have the financial experience of CA's was a disaster. The Government should look again at this issue!

Jon Kirkwood
February 10, 2019

There are probably many cases where "charging fees to dead people" is inexcusable but there will also be many cases where the Financial Institution was not informed of the death so - "life goes on". We need a system where death automatically is advised to those who should know - then there will be no excuse for ongoing charges if the "beneficiaries" terminate the contract.

February 08, 2019

Re Industry Funds (or any public super fund to be honest), I agree some scrutiny would have been welcome on how valuations of unlisted assets are reached and if there are any conflicts / related parties not being managed well.

We certainly would rather find issues now than if a fund was in decline and had to sell an unlisted asset where the actual price turns out to be much lower.

Andrew Varlamos
February 07, 2019

Hi Graham,

A well-focused article. Two points:

1. I agree with Harry Chemay that the output of the RC will hasten the adoption of technology to service the advice and investing needs of Australian investors.

2. However, I also think we will see a much sharper and clearer distinction between strategic advice (tax structures, contributions/pension strategies, estate planning, savings, etc) and investment management assistance. At the moment they are largely bundled together, but more due to habit than logic - and also because our current flawed licensing regime encourages it. Technology will enable many more options for accessing online professional investing help, and we will, I predict, shortly see a whole lot of very large and well-resourced new entrants riding to the rescue. Harry's Clover, and our venture,, are just the beginning. But its orders of magnitude more complex to use tech to solve for very personal structural and strategic issues. I think we will see accountants emerge to solve the supply problem re these issues (as the good ones already do today). In other words, in five years time, the industry won't look anything like it does now.


PS You made me laugh: "Instead, the Commission spent day after day on financial advice and issues such as ‘charging fees to dead people’ which impact a relatively small number of people.". Yes, given dead people are no longer "people", it surely affects very few of them, indeed! :)

February 07, 2019

Yes indeed. I steer people away from "financial advisors" whenever I can - I field random enquiries because I work for a finance company - what most people seem to need (myself included) is strategic and technical advice about how to navigate X, Y or Z, made ridiculously complex by successive waves of legislation from both sides of the political spectrum - and that seems almost impossible to get without signing up to hand over your life savings / super for investment advice and having someone produce an SOA and clip the ticket for you. No thanks. Most people I know who are of a similar age (50s) don't need investment advice, they need a good accountant. Bring on the robots, I say...

February 07, 2019

It's not so much a problem with what the RC (might) have missed, depending on your personal situation, but the overwhelming impression is that the banks and finance industry overall operate in their own interests, not in clients' interests. This problem is exacerbated because the majority of the population are broadly ignorant of how the finance industry operates, and (perhaps worse) can't be bothered to find out, to ask questions, to subject their requirements to a competitive process of providers. 'Caveat emptor' doesn't seem to have been applied to financial transactions, or perhaps credit has been too easy, but at what price? We, the public can't deny that, for however long, 'something hasn't been right ' with the banks, etc, but what have 'we' done about it?

Harry Chemay
February 06, 2019

A measured (and rapid) initial analysis of the key findings of the Hayne Royal Commission, Graham.

I agree wholeheartedly that the work of Commissioner Hayne and his team was compromised by both the terms of reference and the timeframe set (notwithstanding the new PM subsequently softening his position on the initial timeline).

While you raise many salient points in relation to where the Royal Commission perhaps fell short of the mark, I'll limit my comments to the area related to advice, and more specifically the on-going access to it for all but the wealthiest of Australians.

It might surprise some of your readers to learn just how much of a luxury purchase financial advice is, and always has been. I suspect they are among the cohort with wealth and a complexity of affairs sufficient to justify paying for quality financial advice, but they are in the minority.

At best financial planning touches 15% of adult Australians, and that number is, if anything, trending downward.

The reasons for this lack of penetration of financial advice, despite the best endeavours of the Big 4 since that first foray into wealth (when CBA swooped on your old employer Colonial in March 2000, and NAB followed with its purchase of MLC a month later) I outlined in my 14 November 2018 Cuffelinks piece 'Roboadvice's role in financial advice's future'.

As I opined, financial advice, as packaged and sold in Australia today, is not a product with mass-market appeal because it is simply too costly, complicated and untrustworthy.

The industry has done its best to mask the true cost of advice, which has never been trivial. There is a reason pure fee-for-service advisers charge between $300 and $550 an hour, because that is the rate required to justify the cost and risk of providing advice in Australia today.

Now with Hayne's recommendations and FASEA looming, not to mention ASIC's incoming Design and Distribution Obligations (DADO) regime, the advice industry finds itself caught in a pincer manoeuvre that may simply be insurmountable for many.

A quick look at the numbers tells the story. Advice is currently a $5 billion dollar industry employing some 25,000 advisers who collectively only advise 2.5 million of Australia's circa 20 million adults.

We know there are some 9 million adults with unmet advice needs. There is every reason to suspect that up to 30% of current advisers will not meet the FASEA deadline of 1 January 2024 and will cease to practice in an advisory capacity.

We therefore have a growing mismatch of rising advice needs and shrinking advice capacity. So much for closing the 'advice gap'.

You recently posed the question 'Who will provide advice to the millions of people who need it?' in another article. I suggest that it was never going to be the banks, nor any current advice model, be it an IFA, large dealer group or industry fund.

Why? Because the Cost to Serve a Client (CSC) was already ridiculously high for advice and now, with Hayne recommending a completion of the original intent of the 2013 FoFA reforms, will only skyrocket higher.

Where does this leave us? With an advice industry struggling for profitability despite the 'rivers of gold' ensured by our superannuation system. The problem isn't topline revenue, the problem is rising costs and shrinking margins.

The solution can only be one (or a combination) of two options. Either the cost of advice has to rise commensurate with the cost of providing it. Clearly not a great outcome for adviser or client alike.

Alternatively, the cost to provide advice could be reduced. But how? Frankly, I've been in the wealth industry for near-on 22 years, have worked in every compensation model imaginable (including billable hours), and I see no viable alternative to the adoption of more technology into the financial advice process, especially in the middle and back office functions which are currently paper-laden, administratively burdensome and cost intensive.

Westpac CEO Brian Hartzer admitted as much in his testimony at the RC. When asked by Senior Counsel Assisting Michael Hodge QC whether quality financial advice would ever be something that is affordable to ordinary Australians he said "I think, potentially, if it's done through technology" before going on to describe the robo-advice process in some detail.

So here's the $5 billion question Graham.

Rather than writing robo-advice off as nothing more than a passing fad, in what scenario does robo-advice *not* play a significant role in the future of financial advice?

It is quite simply the best hope we have, as an industry, to provide quality advice to those who need it, and in so doing actually go some way towards bridging the 9 million strong advice gap. We at are certainly up for the challenge.

February 06, 2019

Number 9. The way travel insurance companies refuse to cover people who have had cancer for even unrelated mishaps.

Number 10. Insurance companies offering discounts and incentives (eg gift cards) for new policies but refusing to offer same discount to their current customers.

Number 11. The use of cookies to up the prices especially airline luggage ones every time you check their prices.

Number 12. Industry super funds should have people with financial expertise on their boards not only union members.

Colin Stark
February 06, 2019

When it comes to the Banking Sector acting badly, why not address the bank closures across country communities with no compassion shown to long standing customers & creating inconvenience for everyday banking. Is there collusion between banks - if one goes they all go otherwise the last bank standing gets all the customers. Is it any wonder that the 'trusted local banker" has lost that trust through lack of any social conscience by chasing the God of profit over all else. Good will has flown out the door for short term gain. What about all those years when the Branch produced good returns, & who is to say profits won't return in future years if say a mine opens up in the district. There never was a drought that did not end.
Col S

February 05, 2019

The legal profession charged +$1000/hour to all those that were required to provide evidence. This same profession also charges up to $30K to complete a insurance claim that was always going to be admitted from the insurer. How on earth is the financial services industry any worse than the legal profession, medical profession (private hospitals), accountant, building profession? You get paid based on effort and perceived merit of your offering. Populous media give me a break "community expectations", your commentary isn't worth the single sound byte. Ask 99.9% of people what they expected they were getting when dealing with a financial service provider and there would be alignment.

Andrew H
February 05, 2019

A cynical view would suggest the banks have agreed to offload or break up their wealth/insurance distribution and product manufacturing and focus on banking.

In return, they have been handed the mortgage brokers on a platter.

No legislation required! All very convenient and coincidental I'm sure!

Sal Torrisi
February 05, 2019

Great commentary Graham. Thanks

Adam Goldstein
February 05, 2019

Then of course there’s the portfolio churning stock brokers and the deceptively defined ‘balanced’ funds.

Paul Smith
February 05, 2019

It's been a shockingly narrow and skin deep commission....but better than nothing at all. It's highlighted what so many already knew.

February 05, 2019

Why isn't anybody highlighting the fact that vast majority of retirees would be better served outside superannuation? Unless you are likely to pay tax on earnings and with seniors tax concessions you'd need probably in excess of $500,000 as individual and $1,000,000 as couple, earning 6%(good luck with that), there's no tax payable. What is the average or mean superannuation balance of retirees? Individuals less then$200,000 couples less then$400,000. What's the benefit of being in Superannuation?
Retirement income streams can be perfectly constructed outside supearannuatio using a mach greater range of investments at much lower cost and without complexity, regulation and death taxes of superannuation.
Most importantly without fees and costs of superannuation. Term deposit pays up to 3% net. Cash 2.55%, try getting that in Super. ETFs charge as low as 0.18% etc. Compare.
MOST retirees are in the inappropriate grip of superannuation industry. WHY? Why isn't this being highlighted?

February 06, 2019

Rudi interesting point you make. However there will still be advice needed regarding where to invest that same money that is currently in a super fund. And that will come at a cost just as it does in superannuation.

SMSF Trustee
February 06, 2019

Rudi, most super funds get 2.5% or more net quite consistently, except in recent years for their cash options which understandably have only delivered 1.5% or so.

As for earning 6%, that's pretty much been the standard return on balanced super funds over the last 3 years, if not more. That doesn't guarantee you get that again in the next 3 years, but if the super funds don't get it, then neither will a similar investment outside super.

I'm not sure exactly what you're actually saying, but I suspect that your point isn't "being highlighted" because it's just plain wrong. The same investment inside super pays no more tax, and most of the time less tax, than that investment outside super.

February 06, 2019

SMSF trustee,
If your income is below taxable ie. Less than $58,000 for senior couple, there's no tax payable. Why do you need to be in superannuation?
At least you wouldn't need to pay superannuation advice fee, cost of holding money in Super and avoid complexity, regulation and taxes on distribution to non beneficiaries.
Simply put if a couple has $500,000 in superannuation and earns say $30,000 in income... there's no tax.
Why are they in superannuation?
What's the benefit to the retiree? NONE.

SMSF Trustee
February 07, 2019

Hi Rudi,

the reason for being in super is that there's less tax paid while the portfolio is accumulated during your working life than otherwise, so the amount saved builds up more.

You may have a point once retirement is reached - so I withdraw my comment about being 'plain wrong' now that I understand what you were trying to say. My response, however, is that if you're already in a super fund that's going to provide the $50k a year income, what's the advantage of exiting that fund and investing in something else? You pay buy/sell spreads to go from one structure to another, only to end up with the same portfolio.

They can stay in super without paying any advice fees and fund management fees will be the same whether they're in or out of super. Your comment to Glen seems to think that there are costs to being in super that aren't incurred outside it, but I don't think that's the case. There are costs to being in managed funds, whether in super or not.

So it's not a case of 'needing' to be in super or not, it's a case of how you make sure that the investments you have actually deliver the best value for you in your retirement. Everyone will be different and needs at least some level of advice to make sure they don't make an expensive decision that can't be undone.

February 06, 2019

You have neglected an important consideration, there is no CGT within the pension phase of Superannuation, managed funds distributing realised gains every year can have a massive impact on that $58k number you quote and can impact things like eligibility for Health Cared Cards.

February 05, 2019

On how much lawyers make from 'dead people' - to get probate, as I have just found out, you can fill the forms out and lodge at the Supreme Court yourself for $350, use an online service for a fixed fee of $600 plus court costs, or an experienced law firm for $3000 plus court costs if you don't want to do any of the work yourself.

February 05, 2019

Excellent article. I will be scruitinising my superfund in the areas that the Royal Commission has missed. I have for years been rather miffed at the rates paid on cash in my superfund. Especially when they charged a fee of 0.4% on it. Why does cash attracts such a high fee when they are essentially depositing it in their own bank accounts. They are cross subsidizing their retail bank with cheap deposits. I think what of the attraction then off industry fund is that they generally find the best rates and diversified their non equity assests to infrastructures and private equity. There is nothing safe about holding cash in a retail fund when you are guranteed to lose.

February 05, 2019

The findings of the RC are pretty poor.

Having worked for a US domiciled fund manager and then an Australian Bank the culture between the two was so wide it was frightening. The US manager had a very strong culture and the customer always came first...that came from the top. Anyone found doing the wrong thing was instantly dismissed. There were some bad apples but eventually through the internal whistleblower policies that were established and enforced by the company they were weeded out and were gone.

Some areas I would have liked addressed included:

- full transparency on conflicts of interest across Super, Funds Management, lending etc. They should also disclose what fees re payable to those conflicted interests.
- Anyone found committing fraud should have their licence revoked, possibly assets frozen and jailed.
- Directors removed from office for failing to meet the standards expected. There needs to be greater shareholder activism on the role and reelection of Directors. It has to stop being a mates club and they must take ownership of their decisions.
- A clawback from bonuses and deferred bonuses for any Exec or employee current or previous who was found or should have been aware of behaviour what was not in the best interest of the client.
- A proper whistleblower policy that protects and supports anyone who provides information similar to other markets such as the US. Companies and employees get away with what ever they want with little consequences unless there is a strong leader and an effective policy.
- A bank can not own a funds business, they are clueless on how to correctly run a funds management business. They can have a minority stake but not control.
- Very long term performance bonuses with only a very small STI to ensure executives act in the best interests at all times. Any misdemeanours and they lose their entitlement. If they resign it is not fully paid out but held back or forfeited.

February 05, 2019

Hi Graham,
I found your article well-balanced and fair and its a pity some of the ignorant bank-haters have misinterpreted your analysis.

My comment relates to superannuation. A properly constructed system would be simple to explain and to understand. Instead we have hundreds of pages of complex regulations, inexplicable complexities, embedded unfairness and seemingly arbitrary limits and conditions. No politician I have ever met has more than a superficial understanding of what the general public is subjected to by this needless regulatory complexity (ditto the tax laws, but that's another can of worms). It's no wonder most people have to seek advice, especially when the rules keep changing every couple of years. They are virtually forcing 99% of the population to rely on advice from people, many of whom are more salesmen than advisers, just to avoid all of the negligently embedded traps. Why not simplify this monstrous regulatory abomination - then most of us won't ever need to swim with the sharks in the financial advice arena.

David J
February 05, 2019

Hi Graham

As a financial adviser I'm not sure if I agree with your view on financial advisers charging dead people. I think the criticism was aimed at the fact the client dies and the adviser keeps charging a monthly % or $ fee out into time until the estate finalises. To me that criticism is fair.

When a client dies, the monthly fee should be turned to $0. If I then assist with closing down investments, probate, meetings etc I either choose to do it at no charge if the client was longstanding and there wasn't too much involved or I charge the estate for my time involved by the hour......just as a lawyer or accountant does.


Don Macca
February 05, 2019

Mortgage brokers is the one area where Commissioner Kenneth Hayne and his staff have got it wrong.The current government have said this is the only recommendation they are opposed to.
I was able to get a 30 year (principal & interest) loan (we are both over 80). The final payment will be due after we turned 110.
We got the loan through a mortgage broker in just under a month.
I have no doubt that brokers have been the major reason for competition in interest rates. Banks have also found out the cost of using a broker is lower than their own costs of assessing a loan application. The mortgage brokers with a large network are meticulous in ensuring the data supplied is correct. The main problem appears to the individual operators who have fiddled with the information. This is the area which the Commission should should have been targeted. Let's not throw the baby out with the bath water.

February 05, 2019

Wow Graham amazing stats on Google searches versus massive players , well done, I enjoyed this article on 8 problems royal commission missed.

February 05, 2019

I think that Hayne has seriously erred with regard to mortgage brokers. I have had a mortgage broker for over 10 years who has provided fantastic and ongoing advice, including pressuring the bank to reduce my interest rate. If I cut out the broker and went directly to the bank I would pay the same mortgage rate anyway. So there is no cost of this advice to me. The banks just want to reduce mortgage broker fees to increase their profits without investing in their branch networks. If Hayne's recommendation were to be implemented it would reduce competition in the market significantly, drive customers to the big banks to the detriment of other providers and increase net interest margins.

Horace - the somewhat lop-sided donkey
February 05, 2019

It's not really within the spec of the RC but I'd think insurance could do with a look over. My un-editable private health policy includes me paying for all sorts of female-centric items I have absolutely no need for, such as obstetrics etc. Not much good for a single bloke so why even offer it?

February 05, 2019

I am staggered at the number of people who willingly signed blank forms. One wonders whether in the past they signed blank cheques when paying bills. I can understand people being tied up in knots over the small print but not to even read the base contract or application form and ask questions if unsure, certainly beggers belief.

February 04, 2019

Graham you are inconsistent in your desire to stop the banks exploiting human behaviour by various means (which I strongly agree with), but allowing advisers and brokers to continue to do so via their remuneration structures (which I strongly disagree with).

Advisers charging % based fees do so because the percentages are small and believe it or not people don't connect the dot from % to $.

People say they won't pay a mortgage broker a fee because they think they aren't paying for it. There are a lot of brokers out there still saying their service is free. It's not. Never has been. It's just not visible to the client, just like many of the banking practices you identify.

Consumers don't know how much they should/need to pay for these services because the industry has done such a good job of hiding how much advisers are being paid. The only base they have to work from is "free" advice and you want that to continue.

Until these services have a clear explicit $ price, with no conflicted remuneration of any type, the game will continue and consumers will never reach a position where they understand the true cost of advice.

February 05, 2019

Jason, my husband is a finance broker of 18 yrs experience. What has been written here is spot on. The consumer does get this service for ‘free’ as if they went directly to the big 4 or any small lender they do not pay any less. Also the broker industry has kept competition on interest rates lower as you would find by doing some research on an area you obviously know nothing about. Over the last 5 years also there has been very strict guidelines put on brokers and they are highly regulated. All this implementation would do is give the big 4 more power and less competition, and take a service away from busy people looking for the best loan for their particular personal circumstances.
When you go to the doctor do you know the breakdown of how much he makes on your fee, when you go shopping do you know how much Mary at the register is being paid by Woolworths from your bill. These are all services given.

February 07, 2019

Diana, if the service was truly free your husband would have given broking away 17 years and 11 months ago when no money came in the door. It is not free and never has been. Incorporation in the overall cost in the loan rate does not make it free, only hidden.

The same arguments get thrown up in relation to life and disability insurance but is proven false everyday as more and more advisers switch from taking commissions to a fixed fee. That's right the adviser strips the commission out of the product and the client pays less.

The mortgage broker commissions are well known, can be identified, separated and rebated to the client also and where this is done the client pays less. The problem is very few choose to do so. Why? Clearly most find it more lucrative to take the commission. After all even you think its a "free" service.

In comparing your husband to Mary at the Woolworth register and a doctor you have missed some key differences.

When a client engages your husband they are looking for advice on an appropriate lender, loan product, repayment structure, etc. They expect that he is looking after their interests, not those of the lender, and that their interests are ahead of his own and I'm sure your husband would say he does that. As a result, they deserve to be provided such a service without your husbands interests being in conflict with theirs. Under a commission structure this can never be the case.

Mary's customers expect nothing from her other than a pleasant personality and to process the transaction accurately. Mary has no duty to them other than that. They chose the groceries, where to buy them and how much to pay.

A doctor is not paid on the basis of the outcome of the consultation. They don't get a kickback from putting you on heart medication, or using a brand name product over a generic or for sending you for a blood test. You knew what the cost was when you walked in the door. It doesn't change. The same can't be said by a mortgage broker.

I'm not saying mortgage brokers don't perform an important role or shouldn't be paid. My point is the inherent conflicts in how they get paid should be removed due to how they influence thinking and behaviour.

Your comments prove this.

February 04, 2019

I think the other item not explored properly is putting in place an ombudsman arrangement to oversee the ASIC and call them to account for their day to day conduct. I have first hand experience of reporting (with an archive box of evidence) significant wrong doing by an adviser involving client money and his related companies,. We took legal action with the clients to recover money by repossessing properties, but the ASIC weren't interesting in pursuing the adviser, the ASIC was only interested that we recovered money, that person is still operating in financial services to this day. I have always had the view that the whole sorry banking/superannuation saga could have been reduced or avoided if for the last 20 years the ASIC had actually done its job of enforcement, not appeasement.

Graham W
February 04, 2019

Perhaps the commissioner did not address teaching of financial literacy in schools is because we should be able to trust our advisors to give us proper advice and act in our interest. We trust our doctors without having our own medical education, we trust teachers, instructors, cpreachers, counsellors of various types and politicians to lead us and guide us without us being literate in their professional areas because we trustb them or ignore or avoid them. Surely we can do the same with financial advisors.Once upon a time, we trusted our bank manager enough to place him on a pedestal in our society. Today he is seen more as a grubby car salesman. Put the blame and responsibility why it rightfully belongs, on theose who seek to guide us throught our ignorances, not on we the ignorant.

February 04, 2019

Not sure if I will continue reading your what has been a great little read to look forward to it whenever it appeared in my inbox.

Why can't you except the wrongdoing by these financial constitutions??
Just read re-read your own articles, criticism is squarely aimed at the RC and Hayne I would have expected a little more measured criticism from you.

This whole segment sounds a bit like Mr. Morrison, nothing much will happen let it blow over.


Graham Hand
February 04, 2019

Hi Tony, of course, it's your prerogative whether you continue to read Cuffelinks after I offer my opinion. I'm noting that Hayne did a good job but missed important issues. Already today, the share prices of banks are up strongly, showing the market thinks they were relatively well treated in the Final Report. And the AFR says this today:

"The fearsome beast that's menaced Australia's financial services industry for the past year turns out to have been a paper tiger.

The final report of the country's Royal Commission into misconduct in the sector will be a relief for bank investors."

Commentators do not have an obligation to praise without qualification. Cheers, Graham

Chris S
February 05, 2019

I agree wholeheartedly with you, Tony. I believe that the financial institutions still have not "got it", and probably never will. This type of article by the financial industry's cheerleaders will simply add to the belief of people like Ken Henry, et al, that this will all blow over, and it won't be long before it is back to BAU (business as usual).

I recall that Cuffelinks was one of those commentators that did not think a RC was necessary - it seems that, sub-consciously at least, they still believe that.

My prediction is that within 5 years, 10 at most, bankers' appalling behaviour will again be in the spotlight, not least because apologist commentators like this will have continued to gloss over the abject failure of decency and ethics.

Graham Hand
February 05, 2019

Well, Chris, I was one of the original whistleblowers against the banks, back in 2001 before it become trendy. I put my career on the line to tell all in the book 'Naked Among Cannibals', which included hundreds of pages of previously-undisclosed material about what really happens inside banks.

Now I'm supposed to be an apologist for the banks.

Why can't someone look at the evidence and form a view, without being accused of being partisan?

Cheers, Graham

Chris S
February 05, 2019

Graham, let's pick up on just one of the points you make, "fees to dead people". You posit that financial advisors are entitled to fees after death, just like any other professional. The cases picked up by the RC were absolutely egregious - one CBA-linked advisor kept charging for a decade. There were many cases like these, many not aired because of the limited time-frame of the RC. (Do not forget that the TOR and processes were effectively written by the banking institutions themselves.)

So, according to your scenario, continuing to charge fees after death is OK, even though often these are charged either monthly or in advance? Surely the advisor's role is simply to wrap up the FUM, and transfer them to the estate. That should be a relatively simple matter that is already covered by fees already paid, or at the very most a month or two. Not for years as exposed by the RC/

My concern is that the institutions, aided and abetted by this government, cheered on by the commentariat, will simply try to weather the storm and over time, it will be BAU.

As a victim of a bad financial advisor, I want to see everyone singing from the same hymn sheet. Let's root out the evil, send the worst cases to prison, confiscate assets from wrong-doers, and put in place a system that comes down hard and quickly on anyone stepping out of line.

Unfortunately, we are already seeing Frydenberg and Morrison already watering down their responses. Any encouragement from the industry, media and commentators is doing harm.

I'm not holding my breath on any of this - as noted above, I predict that in 5-10 years we'll be back here again, with people wondering why it keeps happening.

We need Cuffelinks and others to be working to stop the rot, not opening the door to allow these banking lowlifes to be able to slither back to shaft us all again.

George Hamor
February 07, 2019

Bernie Fraser was amongst those who did not think the RC was warranted.
Very few realised the extent of the rorting and awful behaviour of a number of people we trusted and Mr Fraser did acknowledge this .
Although Graham does have a benign view of some of the banks’ behaviour I would have thought that if an employee was found to behave dishonestly they would be dismissed instantly and if that behaviour was illegal the person in question reported to the authorities.
I do agree that if ASIC and APRA were doing their job there may not have been a need for the RC and the people in charge of those organisations should face heavy punishment.

Robert Goodwin
February 04, 2019

They (the Banks) are all the same. I read the cost of funds from overseas has been increasing as US rates increase. Here the bastards adjust their deposit rates ever so slightly down (out of cycle) a few basis points here and there but over time ripping off everyone with a few dollars in their accounts.Ive seen this with Raba Bank and NAb the 2 banks we deal with . It’s easy to track...they always quote things such a “ adjusting to market forces” just jargon. Put them in jail where crooks belong.

February 04, 2019

There is no "cycle" to be out of. Your comment just highlights the lack of financial literacy in the general populace.

This widespread bloodlust amongst the commentariat is also disconcerting. If you don't like the rates you get on savings (and let's be honest, who does?) then you can move to somewhere that gives you a higher rate - if you can find such a place. That perhaps you can't doesn't mean that people are crooks and should be in jail.

February 04, 2019

Get ready for more default funds to move now, with the crazy recommendation to ban advice fees against default funds. A fee charged to a default fund can only be agreed to. Default fund members need advice just as much as choice members.

February 04, 2019

I personally maintain that there really is no place in managers of investment funds on a mature Superannuation & Retirement Income Stream product platform for charging so called “retail management fees” and then rebate the difference between wholesale investment management and retail investment management fees to the platform providers who may or may not pass on the rebate to the individual member. In some cases this rebate can be as much as1% p.a. In perpetuity. It has a much larger detriment to the other incidental fees on the financial well-being of the member. An opportunity missed by the Hayne Royal commission.


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