The best reality TV show in Australia right now is the televised hearings of the Royal Commission into Australian banks. The formal public inquiry, led by a retired judge with broad coercive powers, has uncovered a litany of wrongdoing including bribery and fraud rings, poor lending practices, and pervasive lying to regulators.
The most startling revelations relate to financial planning and wealth management.
- provided poor and inappropriate investment advice,
- charged fees without providing any additional services,
- siphoned fees from the estates of deceased clients,
- impersonated clients or forged their signatures on documents, and
- generally failed to act on legitimate client grievances.
Very similar practices came to light after the global financial crisis.
- Financial advisers, whose remuneration was linked to sales, ignored their fiduciary duties and failed to put the interests of their clients first.
- They succumbed to conflicts of interest, giving out “free” advice while being paid by sellers of investment products (including the banks where they were employed).
- Banks emphasised shareholder returns and profitability over client interests.
- Regulatory bodies were undermanned and politically constrained.
Appears as if nothing will change unless authorities recognise three fundamental facts about the way the system is set up now – which is not dissimilar to how it works in South Africa:
- First, the privatisation of retirement savings has put too much power in the hands of unprepared citizens.
- Second, ordinary investors are unwilling to pay for advice — or at least, to pay enough for the kind of service and expertise they require.
- Third, too many clients are unwilling to accept good advice. Many investors have an unrealistic expectation of returns and frequently underestimate risks, making investment choices which are inappropriate to their circumstances.
It’s clear that many economies suffer from bribery, fraud and unethical business practices and it will be interesting to see how our Banks and the local financial planning / wealth management sector players react to these revelations in Australia.
Read the full article in Bloomberg here.