David Murray takes (yet another) tilt at ASIC

David Murray's antipathy towards ASIC goes back a long way so it was always going to be interesting to see if he would temper his comments once he took the chair at AMP.

Far from being conciliatory, this week he upped the argument considerably, whilst conveniently forgetting, or more correctly ignoring, the fact that AMP's track record with the regulator is less than exemplary.

For example, the chairman and board lying to ASIC is not something one would really like to have on one's corporate tombstone - or CV.

Neither is charging investors for services not received, nor consistently favouring in-house and underperforming products, and thereby making a mockery of the term "independent financial advice".

One presumes that David Murray's approach to ASIC follows the line that the best form of defence is "attack, attack, attack", or that other well tried defence, "deny, deny, deny".

There's no doubting that the level of compliance and regulation required by ASX listed companies (and unlisted ones if it comes to that) is significantly greater than it once was, but how each one implements ASIC's guidance can vary from company to company. What is quite obvious is that AMP's previous chair and the board took a very detailed and hands-on approach to management, and as the record shows, quite simply failed in the execution.

Going forward expect more entrenched criticism of ASIC from David Murray, but what will now be interesting will be who he appoints as CEO, and how they both manage to change the culture, practice and business model at AMP (assuming Murray intends to do so).

The market and the AMP share price will no doubt tell the story over time.

Meanwhile, next week sees a resumption of the Hayne Royal Commission, this time around focusing on the Superannuation sector. No one is likely to be surprised (although they might be shocked) at the revelations that will no doubt be exposed.  

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.