Anyone who has followed the goings on at the Royal Commission into Financial Services over the past six months or so won't have been surprised at the damning indictment of nearly every aspect of the banking, financial advice, mortgage broking or insurance sectors when Mr Hayne's Interim Report was delivered to the government earlier this afternoon. In fact unless you've been on the moon over the past six months you would have had a pretty good idea of the report's conclusion - the sector has been loaded towards the industry participant - the big end of town - and against the consumer.

It seems pointless to try to cover all but the overall gist of the lengthy 3 volume interim report. The real issue going forward is to what extent the politicians will actually follow through with the Interim Report's recommendations, even before the final version is delivered early next year. Early comments from the new Treasurer, Josh Frydenberg suggests he will take firm action, but without being overly cynical, he is a politician after all.  Maybe the upcoming election will ensure stern words are followed by firm action.

Meanwhile, untold damage been done to the standing and reputation of the financial services sector in the eyes of the consumer, although to many it merely confirmed what they perhaps already suspected. What it did fully expose was the massive conflict of interest between corporate profit and personal gain on one hand, and the best - or at least a fair and reasonable - outcome for the customer on the other.

Actual recommendations will no doubt be the subject of the final report, after Mr Hayne has grilled the CEOs of the various banks and other institutions, which we presume is due to take place in Round 7 of the public hearings scheduled for the last two weeks of November, under the overall title of "policy questions arising from the first six rounds". Whilst to date it is only the CEO and chair of AMP who have felt the full fallout of their time in front of the HRC, the bottom line is that responsibility for corporate culture ultimately lies with the board.

It is obvious that board and therefore company cultures over the last couple of decades have been slanted strongly towards the pursuit of corporate profit, achieved through an increased market share in the now well understood, but flawed concept of vertical integration, coupled with a system of commissions and bonuses which have created the massive conflicts of interest.

Where the balance lies between corporate profit, looking after investors, and doing the right thing by customers is difficult to judge, and probably even more difficult to legislate for. We just hope that the final outcome of Commissioner Hayne's report - be it the interim or final version - will not result in additional layers of excessive regulation, but will result in a clear delineation which allows criminal prosecution of the guilty parties where, and when it occurs.

The HRC has produced (amongst other things) some memorable moments over the past 6 months, ranging from the destruction of the AMP's reputation, and that of its chairperson, the collapse of a witness in the midst of his testimony (which might have saved him from further immediate embarrassment), and overall the understanding that the consumer invariably comes second in dealings with the banking system.

The past two weeks have shone a similar light on the insurance sector, with equally horrific tales of appalling, and in some cases allegedly criminal behaviour, generally inflicted on those most vulnerable. Maybe, as one who has had to deal with an insurance company over a claim, or been on the end of a sales call, there weren't expected to be too many surprises, but surprises there were.

Charging deceased people premiums? Tick. Denying claims without just cause? Tick. What was of concern was the size of the organisations, and the seniority of those in the know, with the ability, but not the inclination, to prevent such practices. 

If one had to have sympathy for a witness appearing before the HRC however, it was today's victim, Sally Loane, CEO of the Financial Services Council, the peak industry body with the unenviable task of representing, amongst others, the insurance sector. Without being the perpetrator of the actions of her members, she was made to look responsible for endorsing their collective misdeeds.

It made for uncomfortable TV, and will no doubt be replayed again and again on tonight's news and current affairs channels.  With nowhere to go without condemning or damning her members, Loane resembled someone crossing a river full of crocodiles on a tightrope, whilst dodging well-aimed spears from the other side, all the while with no protection other than "I'm the CEO, and have an expert better able to answer that technicality".

Of course in her position, one question was unanswerable: Why is the insurance industry not subject to the same law that requires directors (and others) to "deal honestly, efficiently and fairly" as required by the Corporations Act?

The problem, however, is that even when applied to the rest of the banking and financial services sector, the issue seems to have been well and truly swept under the (boardroom) carpet.

Moving away for the HRC (which by the way is due to produce its interim report in time for next week's "Hedge Clippings") this week saw the US 10 year bond rate poke its head above the 3% mark again. With multiple opinions on the downward direction of Australia's housing market, one thing remains clear: The rising housing tide we've seen was caused significantly, if not totally, by 10 years of unrealistically low interest rates, and easy credit. 

As those rates rise, and easy credit becomes a distant memory, so that tide will recede, most likely very quickly. Add to that the threat of Bill Shorten and a potential limit on negative gearing, and the outgoing tide may become a flood, with resultant effects on the economy as a whole.

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ATTACHED FILESAFM Fund Review - August 2018 (pdf format)