We tend to overlook the official name of the financial services inquiry. It begins with 'Royal Commission into Misconduct'. Kenneth Hayne and his team are delivering mightily, and although the current round is only meant to "... focus on policy questions from the first six rounds", the fireworks continue to fly.
This week, we heard how Matt Comyn, now CEO of CBA but Head of Retail Bank from 2012 to 2018, tried to convince Ian Narev that CBA should drop some poor insurance protection products. Narev refused, apparently supported by Head of Wealth, Annabel Spring, telling Comyn to "Temper your sense of justice." There's a phrase that will live long after the Commission reports. Comyn said he was frustrated over many years:
Rowena Orr, QC: How do you feel about that comment from the CEO at that time, Mr Comyn?
Matt Comyn: I suspect I was slightly irritated by it.
Consultants at Ernst & Young have since estimated that at least 40% of the 930,000 people who bought consumer credit insurance may deserve compensation.
Comyn admitted CBA often prioritised profit ahead of customer outcomes, and had become deeply complacent with incidents such as the Austrac money-laundering. Then this bombshell:
Rowena Orr: And do you feel that CBA has had the right leaders in the past?
Matt Comyn: No.
Amazingly, in 2016, the then Chief Risk Officer and now Deputy CEO David Cohen, recommended none of the senior executives have their short-term bonuses reduced, despite compliance with risk measures being a 'gate opener' to bonuses. Cohen said the risk criteria were 'fully met'. At the time, CBA was dealing with the CommInsure scandal, anti-money laundering, fees for no service and protection insurance. Narev took the recommendations to the Board, which gave the CEO 108% of his short-term bonus worth $2.9 million. The only executive who received a cut was Annabel Spring, due to the problems in Wealth. Her bonus was cut to 95% of the target.
Current Chair Catherine Livingstone said: "We've all reflected on these outcomes and would regard them as inadequate." She said the Board should have challenged Narev's recommendations and in many cases, given zero bonus. It was also revealed that the Board asked the previous Chair, David Turner, to return 40% of the Board fees from his final year, but he refused.
Alan Kohler has calculated that Ian Narev received $44 million during his tenure as CEO.
It's not all serious at the Misconduct Royal Commission
Attending the Royal Commission in person is not like going to a AFL game, which is always better at the ground. It's more like a cricket test match, better experienced on television where the action is head on in full screen detail. From the public gallery, for example, you can't watch the expressions of Rowena Orr and Michael Hodge, and that's half the theatre. When Orr says "I see", pauses and glances down at her notes, witnesses visibly blanch.
I realise you need to be a finance geek to have fun at the Royal Commission, but there were moments of mirth during Comyn's evidence. Your reporter is caught having a laugh above (arrowed). Kenneth Hayne enjoys interjecting in a good verbal joust, such as:
Commissioner (KH): Are there any ongoing services supplied by a mortgage broker, Mr Comyn?
MC: I think they would be limited, Commissioner.
KH: Well, limited or none?
MC: Much closer to none.
KH: I'll take that as 'none'.
There was also a giggle when Livingstone justified hiring internal candidate Comyn by saying:
"To find an external person globally at that level who has not been involved in some regulatory event is almost impossible."
Comyn revealed CBA was about to move to flat fee commissions to mortgage brokers, but stepped back when they realised the other banks would not follow and brokers enjoying up front percentage fees and trails would stop sending business to CBA. Tail wagging the dog.
Meanwhile, this week, lots of issues clarified ...
The Royal Commission has focussed on commissions and grandfathering, and it's good timing for Rick Cosier to explain what they really are and how they became so contentious. Rick was a financial adviser for 26 years. Bob Deutsch has confirmed for the first time that although Labor's negative gearing announcement refers only to new housing, it will capture all investments. Then Vinay Kolhatkar summarises the excellent report to the Royal Commission by Sunita Sah on why conflicts of interest have become so common in financial advice.
Jeremy Cooper examines the vexed issue of longevity risk, which the superannuation industry has struggled to manage but is now finding options. Monica Rule answers a reader question on how is it possible that the $1.6 million transfer balance cap no longer needs to be measured. In a cautionary note, Graeme Colley provides a seven-piece checklist on compliance issues for SMSFs.
On investing opportunities, Elsa Ouattara shows why floating rate bonds are growing rapidly in popularity, while this week's White Paper from Shane Oliver at AMP Capital offers 13 common sense tips to manage your finances.
Graham Hand, Managing Editor
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