As we progressed through 2018 we became used to - fixated almost - the HRC on the evening news, and front pages of the press the following day. Shock and awe (Orr) at the misdeeds and doings at the big end of town, and great fodder for program producers and print sub-editors.

Less than a month after the release of the final report and for many it's a case of moving onto the next big story - maybe that's just the news cycle of the modern age. However, the ripples - or should we say the tsunami - from the HRC continue to impact the financial services sector even as some are questioning if in the long term the real lessons have been learned.

The Commission had a number of immediate effects, particularly on the reputations, and in several cases the careers, of executives, directors and, in the case of AMP and NAB, the Chair of previously impeccable institutions. Shareholder value was equally shredded, although unlike the careers and reputations, it will no doubt recover over time - with the possible exception of AMP where we don't believe any amount of optimism is justified. If the writing was not already on AMP's wall, yesterday's results would appear to confirm it.

Laws may be tightened, ASIC and APRA's teeth sharpened, but how does one really change culture?

In the case of NAB, Hedge Clippings believes the reason the board was so out of touch with its own business was that they rarely actually experienced it at the coal-face. I am well reminded of, whilst working (thankfully briefly) for NAB's newly acquired broking arm A.C Goode in the late 80's, asking my then NAB director to address a team of remaining client advisors with a few words of encouragement post some necessary thinning of their ranks in the aftermath of the '87 crash:

"I'm afraid I can't do that", he replied. "Why not?", I queried. "Generals can't get down in the trenches." was the response. Of course not - they might get shot! The lesson is that while banking products and markets may change, culture is entrenched.

Whether the Hayne Royal Commission will be sufficient to change culture in the long term remains to be seen. We have after all seen previous enquiries (albeit not Royal Commissions) come to nought or very little. Think the Henry Tax Review - which sadly he'll be less well remembered for than his short time in the sights of Commissioner Hayne and counsel assisting, Rowena Orr.

For some of the best in depth coverage of the HRC and its recommendations (as opposed to or apart from Hedge Clippings' brief weekly rants) you should read 'Cuffelinks' and the excellent opinion of editor Graham Hand. For instance, this piece on the Hayne vs. Henry exchange entitled "Ken forgot it was Kenneth's stage", or this on "8 things the Royal Commission missed".  

And on a lighter note, or as we used to call it - "And now for something completely different",we found this clip of Trump's visit to Europe. Particularly relevant as it looks as if a US State of Emergency is looking more likely to be declared.

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ATTACHED FILESAFM Fund Review - January 2019 (pdf format)

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Australian Fund Monitors

ATTACHED FILESAFM Fund Review - January 2019 (pdf format)

There was a varied response to Royal Commissioner Hayne's final report and recommendations - some saying it didn't go far enough by not banning vertical integration between wealth management and advice space, as well as not naming those it had referred for prosecution, while others, and in particular mortgage brokers, said it went too far.

We'd have to say Mr Hayne came down particularly harshly on mortgage brokers, who have become an entrenched part of the housing finance system over the past 20 years, particularly since Aussie Home Loans switched from claiming "We'll save ya" as a low cost mortgage originator to becoming a broker owned by the CBA. Yet he didn't recommend a ban on Vertical Integration to limit financial advisors who in reality are a sales and distribution channel of the finance and insurance product issuers such as AMP.

Overall, while looking at vertical integration, the HRC didn't really touch on many of the conflicts and circular requirements within the distribution and research processes operating in the managed fund sector. Having said that, the disclosure and transparency requirements on actual dealer group ownership he has proposed are overdue and welcome.

Overall the market told the real story as it invariably does, with the banks and AMP enjoying a significant rally, and mortgage brokers falling off a cliff.

Maybe there were greater expectations after the public shellacking the industry and specific individuals received during the public hearings. Maybe what everyone wanted was a public lynching, with crowds around the guillotine, but in reality they got that - Directors, CEOs and Chairmen, with tarnished reputations, out the door. We will wait to see the outcome of the twenty-something recommendations for prosecution of criminal conduct, but it is likely to keep the lawyers happy.

However, now politicians will have their say, and with only 10 sitting days prior to the budget, anything can happen. The government is hoping it can adhere to the motto "Festina Lente" (which as I'm sure you would know translated means "Hasten Slowly"), while the opposition can't wait for election time (Festina, Festina, Festina!).

Before we leave the Hayne Royal Commission, one of its side effects has been to slow housing credit, and with it property prices, such that the NAB's Consumer Anxiety Index is at a three year high (probably a notch or two lower than NAB's boardroom anxiety). Consumer confidence is fickle and slows consumer spending, such that the RBA's cautionary comments have lead to a revision of the future of rate rises. While there may be some borrowers hoping for a rate cut, it doesn't signify a great economic outlook.

Casting a view globally there are multiple clocks ticking away as countdowns take place. A countdown to the next stage of US govt shutdown, a countdown to US/China tariffs, a countdown to Brexit and, just so we're not left out, a countdown to the Federal election.

No wonder the Consumer Anxiety Index is high. At least NAB got that right!