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BFCSA: Conflicts of Interest rife in the world if high flying Bankers: Macquarie disaster matches CBA

Posted by on in ROYAL COMMISSION URGENT
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David Murray benefitted from this disgraceful conflict of interest.  The best he can do is call for the SEPARATION and repair some of the damage he in fact profited from - almost by $100 million in last few years.............................This indeed will be a test of strength and character.....to say no to separation and no to weak regulators lying to Parliament, To say no means the FSI is saying "more of the same chaps."    Bring on the Royal Commission into Banking and give Mums and Dads a chance to have their say - they were the end users.                    This email address is being protected from spambots. You need JavaScript enabled to view it.

http://www.afr.com/p/business/financial_services/macquarie_dodgy_advice_scandal_forces_ULSvD9AnKad7lBKlHrQ7lL

 

Macquarie dodgy advice scandal forces rethink of banking model

 

Financial advice. Where to start? After an extraordinary few weeks, during which it was revealed that Macquarie Group was writing letters to thousands of customers who may have received dodgy advice, the corporate regulator slapped Commonwealth Bank of Australia with new licence conditions and the chairman of the Financial System Inquiry raised concerns about the structure of the planning industry, it is hard to know where to begin a critique.

But let’s start with Macquarie. The reputation of Macquarie Private Wealth has been knocked by an enforceable undertaking from the Australian Securities and Investments Commission and the possibility that up to 160,000 customers may have received poor advice. But the problems could get much worse.  The wealth division is home to about 300 planners and there is every possibility (probability) that some (many) will be wondering if it is worth staying with the bank and being tarred with the scandal brush. It would not be a surprise if they were looking at recently established advice boutiques, such as Melbourne-based Escala Partners, which was set up by a group of former UBS advisers following that firm’s enforceable undertaking, and wondering if they might not be able to do something similar.

If the advisers thinking along these lines happened to be the bigger writers of business, which again would not be a surprise, the blow to Macquarie would be all the greater. Then we come to David Murray, the chair of the Financial System Inquiry. Some industry observers argue that the community is so angered by the seemingly endless string of advice scandals that any solution to the problem will need to be dramatic. There is mounting speculation that Murray might recommend the separation of product manufacturing and advice businesses on the grounds that the vertically integrated model is the chief cause of the plethora of conflicts of interest in the advice industry.

Structural separation a big call

This would mean the big banks and AMP and the like being forced to divest either their planning or funds management arms. But it would be a big step for Murray, a former boss of Commonwealth Bank of Australia, and fellow panel member Craig Dunn, a former chief executive of listed wealth business AMP, to make such a recommendation. Both have benefited handsomely from the current regime and presumably believe (or at least once believed) that conflicts of interest can be adequately managed when manufacturing and distribution businesses our housed under a single roof.

Recommending structural separation would also cause chaos in corporate Australia.  “It would be a very big call. It would have profound economic consequences,” Tony McDonald, director of consultancy firm T&C, argues. The banks and AMP own or have ties to about 80 per cent of the country’s financial planners. As stand-alone businesses, many of these networks would not be viable. The profits are generated further up the food chain. Who would buy these businesses and at what price in the giant fire sale? Sure, private equity has been sniffing around the industry, but not to the extent that it could mop up four-fifths of the sector.

In an ideal world, structural separation would indeed be the cleanest way of removing many of the more serious conflicts, but the cost of disruption would be prohibitive. Removing the ability to give incentives to planners to sell products and requiring them to adhere to the same professional standards as lawyers and accountants would be a good start.  Reclassifying advisers between those who offer product-related advice (sales) and those who offer genuine strategic advice would also be welcome. This might lead to tricky problems over definitions and the banks would be wary of the impact on demand if their advisers were suddenly labelled sales people.   But it might be a radical enough solution to appease an angry public.

 

 Time for Government to build one national bank that we can all trust. The rest can fall on their swords.   

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  • setup
    setup Saturday, 30 August 2014

    The only power the banks have is the one the people gave them and can easily take it back. Without our money they are nothing just powerless. Yes it's time for a national bank which is prepared to have the best interests of it's customers.

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