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An enquiry? Careful what you wish for

[ROYAL COMMISSION] New Zealand's financial services sector could get more than it bargained for if a Royal Commission were launched in this country, as it has been in Australia.

Thursday, April 26th 2018, 6:00AM 10 Comments

by Susan Edmunds

The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry last week heard the Commonwealth Bank had charged dead clients for advice.

Then it revealed AMP had misled the regulator as many as 20 times over its practice of charging for advice clients never received.

Sector commentator David Whyte, former head of insurance companies on both sides of the Tasman. has suggested an inquiry is needed in this country - if only to prove that there is nothing untoward happening here.

He said the culture of multinational organisations was driven by the same performance measures and expectations, no matter which country they were operating in.

But Fred Dodds, chief executive of the IFA, said there seemed to be little to complain about in New Zealand.

Any inquiry would end up simply looking at the level of commission paid on life insurance, he said.

"Where is the evidence in New Zealand of the stuff that's happening in Australia?"

Whyte said providers needed to "come clean" about what they were doing and where the boundaries between sales and advice activity were drawn.

There have been concerns that banks and other big providers promote "advice" when they can only place clients in their own products.

But Dodds said someone who took $1 million to an ANZ adviser, for example, would only end up with 20% of that money in ANZ products. "There's an assumption that when you go to a bank with $1m you walk out with $1m of bank product - that just doesn't happen. You need evidence before you start banging the drum.

"If we had an inquiry, you need to be a bit careful what you ask for. You could end up with a wider thing that you think it will be."

The FMA said it was watching the Royal Commission very closely and had been talking with NZ-based firms about their operations.

"Our Strategic Risk Outlook and our Annual Corporate Plan set out a number of priority areas and related work programmes which reflect our focus on sales practices and advice. These priority areas have been partly driven by what we have seen in Australia, the UK and other jurisdictions.

"We are considering whether to accelerate or adapt any of the planned work to reflect issues being raised in the Royal Commission.  We are also in close dialogue with the RBNZ on those matters.”

Earlier this week NAB faced allegations of false witnessing, ANZ admitted "commercial interests" came ahead of consumers and Australian PM Malcolm Turnbull admitted the process could have begun sooner. 

Tags: conduct FMA

« Heads roll at AMP AustraliaThe Code – Issues for advisers (Part Two) »

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Comments from our readers

On 26 April 2018 at 8:09 am Denis said:
Hmm let me see. So far the Inquiry has highlighted bank staff falsifying documents to "smash" targets, a high profile adviser trying to arrange a super transfer despite this losing the client $500K on transfer, a large provider doctoring an independent report on their conduct,
and the practice of knowingly charging fees for services that were not given. Couldn't happen here, right?

Bank execs flit back and forth across the Tasman with ease. NZ is not some strange environment where everything is crazy, upside down and different. The conditions for similar misconduct are all here. The culture that delivers the obscene profits in Australia is encouraged in NZ. Well, it was until two weeks ago, anyway.

NZ operators report to the same people that are currently showing their true colours by hiding at home, watching from behind their fingers, as their underlings are made to look like idiots because the wretched behaviour has been so brazen.

How can anybody seriously imply or state with any confidence that the same problems don't exist here?

On 26 April 2018 at 8:29 am Brent Sheather said:
Looking at the Australian experience there are two groups of institutions which were initially critical of a proposed Royal Commission. Firstly the obvious ones were executives of banks and insurance companies whose members would look bad under any independent scrutiny and secondly the chief executives of government departments whose brief was to police the perpetrators and whose ineptitude would be exposed by any rigorous enquiry. Maybe we can add executives of advisor groups to that list.

It seems that with Mr Dodds comment today and Adrian Orr a few days ago the local players are making the same mistakes. What we really need is the former National Government to come to the party as well and defend their mates. The fact that they haven’t thus far is interesting. Scott Morrison, an Australian politician, realised the errors of his ways too late. He firstly said the Royal Commission was a waste of time but has now changed his tune with the result that many people are calling for him to resign.

Mr Orr obviously hasn’t learnt from the Australian experience. He was quoted as saying that while Australia needed a Royal Commission “NZ’s bank culture is infinitely better”. Bloomberg yesterday made fun of Mr Orr in a column entitled “NZ central bank should lose the hubris”.

Bloomberg went on to say “the problem for Orr is that New Zealand banking is, in essence, a branch office of Australia. Australia’s four biggest banks together hold about 90 percent of deposits in the New Zealand financial system. Two of the bosses of those big four Australian banks have strong roots in New Zealand. Shayne Elliott, chief executive officer of Australia & New Zealand Banking Group Ltd., is a kiwi. Andrew Thorburn, CEO of National Australia Bank Ltd., once ran NAB’s subsidiary in New Zealand.

The subsidiaries have separate boards and are regulated locally, but the economies and financial systems of the two countries are intertwined. Can Orr really be so categorical?

It’s imprudent, to put it charitably, for Governor Orr to suggest that somehow an Australian virus hasn’t crossed, or won't cross, the Tasman Sea. And yet he says it. “The true problem and challenge going on in Australia is cultural,” he said in an interview on Television New Zealand’s Q+A. New Zealand bank culture “is infinitely better than some of the activity you’ve seen in Australia,” he said.”

Last but not least Mr Dodds needs to get his facts straight. He says “there is an assumption that when you go to a bank with $1m you will walk out with $1m of bank product – that just doesn’t happen. You need evidence”. I have evidence. I have a recommendation from a bank showing exactly that and it’s very recent.
On 26 April 2018 at 12:48 pm Paul Brownsey said:
I'm not entirely sure why Adrian's comments are given so much credence wrt to the issues being raised in Australia. The RBNZ's role is to register and supervise banks for the purposes of:

- promoting the maintenance of a sound and efficient financial system;
- avoiding significant damage to the financial system that could result from the failure of a registered bank.

I am pretty sure that if a retail investor went to the RBNZ complaining about fees they were charged or lack of disclosure around a product they were offered, then the RBNZ would just refer them to the FMA.

I don't believe Adrian's opinion is relevant to this issue as he is only concerned about whether this issue could cause a bank to fail. Clearly it won't. Therefore the RBNZ is unconcerned.

What would be more relevant is a statement from the FMA giving comfort that the illegal practices used in Australia have not migrated across the ditch.
On 26 April 2018 at 2:05 pm Graeme Tee said:
Where is Fred Dodd's evidence that "you would only end up with 20% of that money in ANZ products"? Mr Dodds needs to get out more. In the land of independent investment advisors we see plenty of examples of bank products being used almost exclusively under the guise of wealth management services. And yes I have the evidence of this.

Ron Flood gave a good account of the banks dealing in insurance products.

Also strange that Mr Dodds is defending the banks behaviour and not his own members.

Of course an enquiry is warranted in NZ given the extent of the regulatory capture here.
On 26 April 2018 at 2:47 pm Barry Read said:

My favorite recent question at the commission to the Association of Financial Advisers; 'If an ASIC banning order isn't enough, what does it take to get expelled from the AFA?'
On 26 April 2018 at 3:15 pm Murray Weatherston said:
@Barry
It was easy to see the point Ms Orr was trying to make - a good headline (some might say that I've done that myself recently).
But it is important in the interests of fairness to report Mr Kiven's (AFA) response - the adviser was suspended by AFA and not terminated because he still had appeal rights vs ASIC that he had taken up.
Everyone is entitled to due process.
On 26 April 2018 at 3:16 pm Murray Weatherston said:
@Barry
It was easy to see the point Ms Orr was trying to make - a good headline (some might say that I've done that myself recently).
But it is important in the interests of fairness to report Mr Kiven's (AFA) response - the adviser was suspended by AFA and not terminated because he still had appeal rights vs ASIC that he had taken up.
Everyone is entitled to due process.
On 26 April 2018 at 3:48 pm Brent Sheather said:
Hi Paul

Maybe you didn’t read what Mr Orr said? He said “NZ’s bank culture is infinitely better”. That is outside “the maintenance of a sound and efficient system”. That’s what Bloomberg took exception to. His opinion is relevant because he is in charge of the Reserve Bank. The fact that he is unaware of bank practices is an obvious concern. Maybe the government should encourage Mr Orr to invest his pension with the Wealth Management arm of a bank and pay those high fees. That might focus his mind a bit more.
On 27 April 2018 at 11:08 am retired blogger said:
In some circles, the small guys band together and fight and win a few rounds

why is this not happening in our industry in NZ ?

from the USA - Rapid General & Recreational Aviation Response Helps Scuttle Air Traffic Control (ATC) Amendment

April 25, 2018 — A rapid response by the general aviation community on Tuesday made a big difference in helping to eliminate a dangerous amendment to an FAA reauthorization bill in the House of Representatives.

Supporters of ATC privatization attempted to slip a provision into the House’s FAA reauthorization bill that would set the stage for big airline (BEOT) domination of the ATC system.

EAA (recreational flyers) members swiftly responded to a call for action and urged to contact their congressional representatives to oppose the plan.

“Thank you to each and every one of you who reacted and responded quickly to eliminate this attempt at backroom politics that could harm GA,” said Jack J. Pelton, EAA CEO and Chairman of the Board. “This again showed the strong voice of general aviation when we respond in a unified effort.”

EAA learned late Tuesday evening that the threatening provisions within a “manager’s amendment” to the bill (H.R. 4) had been eliminated.

That language would have created an advisory council dominated by the big airlines (BEOT) and composed of the same players that would be part of the previously withdrawn ATC privatization proposal.

On 29 April 2018 at 12:38 pm mike6156@gmail.com said:
The Australian Royal Commission found in 75% of cases where banks advised clients to switch across to their own products, the move wasn’t in the clients best interests. If you believe local banks, fund managers and advisers aren’t immune to this temptation, I’ve got a rich relative in Nigeria ready to give you millions.

Furthermore orphan clients not being charged advice fees, estates not being charged advice fees, suspended funds not deducting adviser advice fees, if you believe this is not happening in NZ as well, then you should hand in your finance professional rifle right now and get a job grooming cars at your nearest used car yard.

It’s entirely understandable none of the industry paper tiger watch dogs want an enquiry. Imagine what the NZ investing public would think if this was going on under their watch.

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Lender Flt 1yr 2yr 3yr
ANZ 5.79 4.55 4.79 4.99
ANZ Special - 4.05 4.29 4.49
ASB Bank 5.80 4.44 4.69 4.89
ASB Bank Special - 3.95 4.29 4.49
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.10 4.29 4.49
BNZ - Std, FlyBuys 5.90 4.69 4.79 4.99
BNZ - TotalMoney 5.90 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.15 5.20 5.25 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.70 4.85 -
Housing NZ Corp 5.80 4.69 4.79 4.79
HSBC Premier 5.89 3.99 4.19 4.69
HSBC Premier LVR > 80% - 3.79 - -
HSBC Special - - - -
Lender Flt 1yr 2yr 3yr
ICBC 5.80 4.59 4.69 5.09
Kiwibank 5.80 4.55 4.69 4.99
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.05 4.29 4.49
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.94 5.30
RESIMAC Special - - - -
SBS Bank 5.89 4.85 5.05 4.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 4.19 3.95 4.49
Sovereign 5.90 4.45 4.69 4.89
Sovereign Special - 3.95 4.29 4.49
The Co-operative Bank - Owner Occ 5.75 4.10 4.35 4.49
The Co-operative Bank - Standard 5.75 4.60 4.85 4.99
TSB Bank 5.80 4.45 4.69 4.99
TSB Special - 3.95 4.19 4.49
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.69 4.79 5.19
Westpac - Offset 5.95 - - -
Westpac Special - 4.15 4.29 4.59
Median 5.89 4.50 4.69 4.79

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