The Royal Commission and the Boiling Frog

Hedge Clippings is reminded of the old adage of the boiling frog - which for those not familiar with it went as follows: If you put a frog into a pot of cold water and put it over a low flame for a long time, the frog would eventually end up "poached". However, if the frog was dropped into a pot of already boiling water it would instantly react by jumping out, and be saved.

In financial services parlance the industry has been on a long slow journey towards being poached, although maybe the Hayne Royal Commission has arrived just in time to create a "boiling frog" moment which will result in it being saved - although not without a severe scorching, and only if the powers that be, and those in charge at the big end of town, take the opportunity to change.

The (long overdue) Hayne Royal Commission has shone - or is shining - a welcome (depending on where one stands) torch on every aspect of the financial services sector. This has now been followed by the Productivity Commission's 500+ page report into Superannuation, particularly focusing on fees and poor performance, and with suggestions of a Top Ten "Best in Show" default system. Now, not surprisingly, ASIC is going to give added focus on the sector, whilst Treasury has also weighed into the debate.

Why has this been able to occur?

Simply because the majority of consumers are not financially literate, and of those that are many have the knowledge to be "self-directed". Meanwhile, most (although not all) of those heading up the industry are very financially literate, and stand, or stood, to make a motza out of the system, the lack of real scrutiny, and a lack of ethics.

Whilst easy to point the finger at the financial advisor actually providing advice to the consumer, the reality is that the real cause is the problem is the systematic and conflicted structure of the industry - be it banking, superannuation, mortgage broking or financial advice. The vast majority of advisors would prefer to give their clients independent financial advice - as evidenced by the significant numbers choosing to do so by moving to an independent AFS licensee. 

Back to the Royal Commission. Round 5 is due to start on 6th August, focusing on superannuation, and will run for 2 weeks.

Round 6, slated for 10 September, will cast its eye on Insurance, while Round 7 on the 19th November will focus on policy questions arising from rounds 1-6.  In between time the CEO's from the big end of town will get their time in the witness box, and anecdotal evidence suggests their minions are putting in long hours beavering away to make sure it won't be too uncomfortable for them.

Some hope.

Talking of hope, Hayne's preliminary report is/was due no later than 30 September, and the final report due by 1 February (2019).  Happy Christmas holidays to Mr Hayne and his team trying to meet that deadline.