Andrew Main is a financial journalist. He has been head down in Royal Commission for many months. Here’s his final views.
As the dust settles over the recent release of Commissioner Hayne’s Royal Commission report, there are two opposing views taking shape and they are both wrong.
First of all, the observers who were expecting to see a long list of names attached to criminal referrals are feeling robbed. The 26 referrals he made identified organisations, not people, and the retired High Court judge left it to a thoroughly chastened regulator ASIC to get on with investigating the referrals further.
Those observers had wanted to see individual malefactors named and shamed.
As one article expressing that view recently put it, the mood among journalists on the day the report was released (February 4) was that “he’s squibbed it”.
That’s the view at one end of the spectrum, shared by a mix of journalists, victims of bad bank behaviour and lastly, people who simply don’t like banks.
Meanwhile, out there in financial services land executives are sitting there like rabbits in the headlights.
Having spent a long time being cavalier with home lending standards, they have suddenly swung the other way and are seeing a regulator behind every tree. They’re doing as little as possible and curling up in the foetal position at any proposal that smacks of risk.
Both groups are wrong, to a greater or lesser extent, but their reactions have been understandable.
Take for instance the Commissioner’s decision not to break up the Vertically Integrated service model whereby banks devise financial products and then sell them to investors.
That’s been castigated by the critics as being everything up to and possibly including a dereliction of duty, but meanwhile all the banks except one have either sold or are selling their wealth management businesses.
They’ve all but done Commissioner Hayne’s job for him, and the last bank, Westpac, is understood to be actively soliciting offers for its BT wealth management arm.
Why legislate when the market is doing the work for you?
There are going to be complications involving Mortgage Brokers and Life Insurers, mostly because the Commissioner has suggested a more transparent way of their being paid which may be at odds with commercial reality.
The Commission has said that Mortgage brokers should be paid by the borrower, not the lender, so that the borrower knows who is on whose side.
And the proposed elimination of all commissions from the sale of life insurance, as the Commission has recommended, will be another hot potato issue given that most people view life insurance as a grudge purchase and if there’s no incentive to encourage them to buy it, they won’t.
The good news in both those cases is that making such payments tax deductible could make a difference. A number of countries allow the deduction of expenses associated with setting up a mortgage, and indeed some countries make all payments tax deductible.
On the insurance side, income protection insurance in Australia is tax deductible, as it is a form of life cover.
It shouldn’t be beyond the realms of possibility to make the more plain-vanilla forms of life insurance deductible, too.
Meanwhile, those two opposing views on the outcome should end up swinging back somewhat towards the middle. The “heads on poles” brigade should sooner or later have the satisfaction of seeing ASIC laying charges against senior financial executives, although don’t expect to hear any cell doors clanging shut any time soon.
And those rabbits in the headlights? One certainty in the financial services world is that if you don’t sell products, you don’t make money. The same applies to bank lending. If it stops, so do the profits. The big players will be back in due course, but they will be a lot more careful than they were. That’s no bad thing.
This article is the opinion of the author, Andrew Main, and is not financial advice. Speak to your financial adviser or broker for more information. I’m sure they’ll be happy to help you. For the active ETF you are investing in, make sure you always read the Product Disclosure Statement (PDS). To find out more and download the PDS, please visit einvest.com.au