“Hopelessly conflicted” pretty much sums it up.
The Hayne Banking Royal Commission keeps delivering the goods.
To those of us in the wealth industry, we knew it was a crooked shop. Still, the banks have a lot of power and so I expected a fair bit of it to be kept under the rug.
But fresh scandals and evidence of general bastardry emerge pretty much on a daily basis.
Last week, it was NAB’s superannuation trustee NULIS. As a super fund, it was supposed to be acting in the best interest of its members, but its administrator was also in the business of selling financial products to the trustee itself.
From the AFR:
Counsel assisting Michael Hodge QC put to former NULIS chairman Nicole Smith that there was an inherent conflict of interest between the trustee, which had the sole duty of acting in the best interests of the super fund members, and the administrator, which was concerned with making profits for the bank.
“It’s hopelessly conflicted isn’t it?” Mr Hodge said.
“Hopelessly conflicted.” There’s a turn of phrase. And a pretty good description of the situation if you ask me.
It’s not just that they’re awkwardly conflicted, where they have to be careful that they’re acting in the best interests of their clients.
They’re hopelessly conflicted. Their incentives run completely counter to the interest of their clients. Either they fail their clients or they fail their bosses.
What a hopeless situation.
And hopelessly conflicted sums up all of the bank-owned fund managers.
Anywhere you have the same entity selling advice and taking a cut on the execution of that advice, you’ve got a conflict of interest.
But that is literally the business model.
There will be a conflict anywhere an entity does more than one of the following: financial advice, funds management, responsible entity, superannuation trustee, investor platforms, investment administration, and custody services.
Some banks do all of them.
And the thing that bugs me is that we’ve been here before. None of these problems are new.
Back in 2012, the Future of Financial Advice (FOFA) reforms were aimed at exactly this issue.
And the circus that has been the Royal Commission shows they haven’t been all that effective.
The trouble was, these conflicts had been built into the wealth industry’s business model, and so breaking it all up would have sent everyone broke.
And so there was grandfathering, and transition periods and general blathering.
But rather than get themselves ready, the banks got busy lobbying to water-down the reforms, or create innovative structures that got around the intent of the reforms.
And so six years on, despite the obvious problems, the hopeless situation, despite the banks under-serving and over-charging client after client, precisely nothing has changed.
But there is a way out. Tell the banks to go and stuff it.
Take a bit of time, skill up, and take charge of your own financial future. I did it. Anyone can do it.
But you can’t say you weren’t warned. The banks are hopelessly conflicted and everyone knows it.
So what are you going to do about it?