In financial markets, 2018 was the year of the Royal Commission. Broadcast live, the hearings became compelling viewing for both market participants and the public, and the worst revelations dominated the news cycle. The Final Report is due on 2 February 2019, and the market awaits with great anticipation.
Banks and large wealth managers are big and ugly and fair game, but like the Westminster political system, they look bad until the alternatives are considered. Do we want to close the loan choices offered by mortgage brokers? Do we want banks to stop offering financial advice to their customers, and instead send them around the corner to an āindependentā adviser? Do we want the banks to reduce lending to small businesses, pushing activity to second-tier and shadow lenders with less regulation and capital. The Commission must note: Be Careful What You Wish For.
Consider what appears on the surface the worst of the behaviours: charging financial advice fees to dead people. How can a dead person receive advice? But financial advisers often have a lot of work to do handling matters for a clientās estate. Are they not supposed to be paid for that? Arenāt the very people in the legal profession who accuse banks of charging scurrilous fees also the people who act for dead clients and charge handsomely for their services? Do accountants turn off the meter when handling the final financial accounts for a dead person? Someone has to manage the affairs of the estate, and many service providers ācharge fees to dead peopleā.
In the Cuffelinks editorials, we covered the Royal Commission throughout the year, and we have collected the major events into this summary, from most recent backwards in time.
The Royal Commissionās two defining moments
In his final summary after an exhausting 68 days of public hearings, 134 witnesses and 6,500 exhibits, CommissionerĀ Kenneth HayneĀ identified one phrase, six words long ā āCan I show you a document?ā āĀ that had entered the vocabulary over the course of the Commission. It was usually followed byĀ Rowena OrrĀ orĀ Michael HodgeĀ demonstrating an embarrassing mistake.
I consider the two most impactful words of the Commission wereĀ dissemblingĀ andĀ criminal.
It was Michael Hodge who accused CBAāsĀ Marianne PerkovicĀ of dissembling. In Marianneās defence, I thought she had a right to provide context, as most answers are not black or white. Dissembling means āto conceal or disguise oneās true beliefsā. Kenneth HayneĀ issued a warning:
āWe will get along much more quickly and efficiently and if I may put it quite bluntly, it will be safer for you, if you attend to counselās questions. If you need to stop and think about your answer, take your time.āĀ
Safer for you!Ā What did he mean by that serious threat?
Michael Hodge said:Ā āIs the reason why you are dissembling in the way you are dissembling because you are trying to pre-emptively explain why it took more than two years to notify ASIC of this breach?ā
Kenneth Hayne later added: āMs Perkovic, I do not regard that as answering counselās question. Please ask the question again. I want you to listen to it and I want you to answer it as directly as you can.ā
Little wonder Marianne completed most of her subsequent evidence with one-word answers. This was in April 2018, near the start of the Commission, and it set the rules. It was a warning to everyone, and the QCs hired by banks stepped up their witness training intensity.
Giving evidence was probably the most intimidating experience in the careers of most of the witnesses. Put this to your āinverted bucket listā of things you never want to face ā¦