Mark Rantall

The Financial Planning Association (FPA) welcomes the announcement from the Commonwealth Bank of Australia (CBA) about measures to improve adviser education and training, increase transparency in adviser quality and support the FPA 10 Point Plan.

Mark Rantall, CEO of the FPA said, “We recognise the strong move the CBA has made in its Open Advice Review program. It demonstrates commitment to deliver a fair and consistent outcome for customers.

“CBA has listened to industry feedback and acted,” Mr Rantall said.

“When all financial advisers are members of a professional association, we are in a better position to build a self-regulatory model under which all planners act in accordance with both regulation and a fully enforceable professional code that commands conduct above legal requirements.

“We remain committed to seeing the term ‘financial planner’ and ‘financial adviser’ enshrined in law, to protect both financial planners and the clients they serve,” Mr Rantall added.

The FPA also welcomed the appointment of a highly credentialed Chairman of the Independent Review Panel, for the recently announced CBA Open Advice Review program.

Mr Rantall said, “We look forward to further announcements on the appointment of appropriately qualified independent industry experts and client advocates. The CBA compensation process is essential to restore public trust in the financial advice industry. It is vital clients receive full and fair compensation in a timely manner. We believe this first decision is a step in the right direction and look forward to further detail.”

The FPA continues to support a collective forum to develop a response to the 61 recommendations from the ASIC Senate Inquiry.

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Marianne Perkovic

Commonwealth Bank has announced new minimum education standards for Commonwealth Financial Planning Limited (CFP) financial planners, supervisors and managers of planners.

Since 2011 the Bank has transformed the CFP business. There have been changes in management, structure and culture. We have also invested in new systems, implemented new processes, enhanced adviser supervision and improved training. These new standards are an important step in increasing the educational and professional standards of our financial planners, and exceed current industry requirements.

The new education standards include:

• All new CFP financial planners, recruited from today, must hold a degree in finance, business, commerce or a related field;
• All new CFP direct supervisors or managers, recruited from today, must hold a degree in finance, business, commerce or a related field;
• Existing financial planners authorised under the CFP licence and their supervisors will be required to hold either an Advanced Diploma in Financial Planning (or equivalent) or a degree in finance, business, commerce or a related field by 30 June 2017;
• Existing Senior Financial Planners will be required to obtain the CERTIFIED FINANCIAL PLANNER® certification with the Financial Planning Association of Australia; and
• CFP commits to making membership of a relevant financial services industry association a minimum standard required of all CFP financial planners by 30 June 2015.

Executive General Manager Advice, Marianne Perkovic said both the Interim Report of the Financial System Inquiry and the Final Report of the Senate Economics Committee inquiry into ASIC concluded that educational levels across the industry need to be enhanced. Last Friday’s announcement is an important and proactive step to meeting the standards envisaged by those reports.

“The relationship between a financial planner and their customers must be based on trust. The significant transformation in this business since 2011 has been all about building that trust. This is an important next step that continues our investment in the professionalism of the advice industry.”

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Bruce Madden

Australians can thank Henry Ford for the experience of dealing with a financial adviser who operates under a brand owned by a bank, who recommends a product manufactured by that bank, who administers their portfolio on a software platform owned by the bank, and who in turn is remunerated for making that sale, and for using the platform… by the same bank.

For bankers this kind of vertical integration delivers business synergies, cost efficiencies and the ultimate ticket clipping selling opportunities that Henry Ford might have dared to dream about when he turned the first sod on his now infamous factory site outside Dearborg, Michigan around 90 years ago.

Henry had unlimited market upside to flog his Model T’s to 1920’s America.

But he would never have conceived of the rich growth afforded by a government -mandated market such as modern day Australia’s superannuation guarantee system.

And that is where the vertical integration analogy must stop. For beyond this point the future looks obscene. I argue that vertical integration in wealth management and financial services has a decidedly horizontal, flat-line future.

For, unlike Henry Ford, financial institutions don’t make badged hard commodities (and yes, I include the branded golf umbrellas in this comment).  They operate in the intangible market of promises and pieces of paper.

Put another way: financial institutions are custodians, by and large, of other people’s money. Contracts are forged between institution and financial service client not in the quality of the steel nor the amount of shiny chrome on the bumper. Financial service contracts are forged – or should be – in trust, ethics, fiduciary obligation and empathy with the customer.  Reputation. Brand. Customer affinity. Remember Henry, Emanuel and Mayer Lehman anyone? The original Lehman Brothers.

Yes, of course rationalist economics apply in order to sustain proper functioning commercial systems. And a robust Government and statutory regulation.

But at the end of the day, all of us in the financial services ecosystem are bound by the same truth: we exist at the sole pleasure of the humble customer.

Start treating people with a McKinsey-style zeal for widgetry and numerical order and presenting it as something that it is not (ie: sales dressed as financial advice) and the system starts to creak.  Badly. Add fraud, which is a potent symptom of the internalised volume/reward cycle and you have a recipe for complete disaster. It needs to be fixed. Client centric financial advice has no place in an integrated product world. It is that simple.

Vertical integration works great… for car manufacturers. Consumers go to a Ford dealership when they choose to buy a car. They expect to buy a product designed, manufactured, marketed and sold by Ford. They understand the simple contract of purchase price, taxes, trade-in valuations and drive away prices. Hell, they might even finance the purchase through an affiliated financing company and be happy to pay a disclosed commission to the sales guy. Why is this important?

Because today, July 15 David Murray, chairman of the Financial System Inquiry, will stand to deliver the FSI’s interim report to the National Press Club. I for one will be intently listening to his key messages to determine how the largest elephant in the room might be addressed.

The elephant is the systemically uncompetitive nature of vertical integration (actually, vertical monopoly) embedded within Australia’s largest banking, superannuation and wealth management institutions.

For in the light of recent revelations concerning ASIC and the Commonwealth Bank, and 61 calls by the Australian Senate – including for a Royal Commission – will it really fall to the FSI to flatten out the vertical mess?

These are interesting times.

Bruce Madden is a leading communications strategist and opinion leader with 20-plus years working inside the financial services marketplace. The views expressed are entirely his own.

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We know this is unacceptable and I unreservedly apologise to all customers affected. Poor advice
provided by some of our advisers between 2003 to 2012 caused financial loss and distress and I am
truly sorry for that.

Today we are announcing our Open Advice Review program. This is a new, far reaching program of
review and remediation with independent oversight, to deliver fair and consistent outcomes for
customers of CFP and FWL. This program demonstrates our commitment to make it right for our
customers.

At no cost to customers, the program will provide an assessment of the advice received, access to an
independent customer advocate and an independent review panel. The program will be fully
transparent to customers. To ensure we reach as many customers as possible there will be an
extensive national advertising campaign.

Before providing further details of the program, I’d like to make some more general comments.

The events considered by the Senate Committee occurred during the Global Financial Crisis, at a
time when most people, even when well advised, were losing money on their investments. The matter
of how to compensate affected customers was complicated. Our principle was to put customers back
in the position they would have been had they received suitable advice. We have already paid $52
million in compensation to more than 1,100 customers of specific advisers who were identified as
having provided poor advice.

We have transformed our CFP and FWL businesses, so that today they can perform the critical role of
providing quality and affordable financial advice to our customers. There have been changes in
management, structure and culture. We have also invested in new systems, implemented new
processes, enhanced adviser supervision and improved training.

However, I acknowledge there are views among some customers, and indeed in the Senate report
released last week, that our approach has not been sufficient for all our customers. We have listened
carefully and this program is a direct response to those concerns.

Open Advice Review program

The key features of the new program will be:

• Any customer who received advice from CFP and FWL between 1 September 2003 and 1
  July 2012 and has concerns regarding that advice will be able to call a dedicated number and
  request an assessment of any advice received in the review period;
• The review of the past advice will be conducted by a specialist Commonwealth Bank team;
  In conducting a review, the specialist team will share the information it has available with the customer and will invite the customer to provide information that the customer has available;
• Once the review is complete the customer will receive an assessment and the offer of an independent customer advocate funded by the Commonwealth Bank;
• A customer who does not agree or is concerned with the assessment will have the option of a further review by an independent panel, determining whether compensation is payable and, if so, how much;
• The Commonwealth Bank will be bound by the outcome of the panel’s determination. However, the customer will not be bound and will still have the option of taking the matter to the Financial Ombudsman Service or pursuing a claim in respect of the matter; and
• We will also have the process overseen by an independent expert who will make their periodic reports public.

The comprehensive nature of this Open Advice Review program demonstrates our commitment to delivering a fair and consistent outcome for customers. This program is in addition to the licence conditions previously announced by the Commonwealth Bank and the Australian Securities and Investments Commission.

In order to improve public confidence in the broader financial planning industry, we will advocate for improved adviser education and training, transparency in adviser quality such as the public adviser register and measures that improve the financial literacy of customers.

The way in which we have transformed our CFP and FWL businesses over the past three years shows our commitment to ensuring that the best interests of our customers are always our first and foremost consideration. This transformation brings CFP and FWL in line with our other businesses at the Commonwealth Bank.

I also want to acknowledge that there are 50,000 people who take pride in working for the Commonwealth Bank who also have felt let down by these events. Their focus on customers over many years has delivered excellent outcomes for over 10 million customers, the 800,000 Australian households who own our shares directly and the millions more who own them through their retirement funds, and the broader community around us.

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Along with the surge in the Commonwealth Bank’s share price to a record high of $79.95 this week, Westpac reached a fresh high of $35.99, while ANZ broke through $35, reaching a high of $35.07 yesterday.

Partly explaining the surge in prices is the expectation of record profits in the first half reporting season, as well as anticipated higher dividends for shareholders. ANZ is expected to report its first-half profit on May 1, Westpac on May 5 and National Australia Bank on May 8.

The Commonwealth Bank has already reported its first-half profit, which surged 16 per cent to $4.27 billion, boosted by cost cutting and strong growth in mortgage lending, despite sluggish economic growth.

Russel Chesler, Director, Investments & Portfolio Strategy, Market Vectors Australia, says the big banks are attracting broad based investor support, with retail and institutional investors attracted by dividend growth as well as the big banks’ track record of delivering impressive capital gains.

“Three of the big banks are expected to unveil higher dividends in May and report strong, if not record, earnings for the first half, driven by continual cost cutting, strong growth in home lending and low levels of borrower default rates. This expectation is drawing investors to the sector, which has rallied in recent days ahead of the profit announcements,” Mr Chesler said.

“With dividend yields on banks around 5% compared to term deposits which are not yielding much more than 3%, many investors are choosing to invest in the banks. This search for yield outside of cash has seen bank share prices perform strongly this year and prices could continue to run given the powerful and entrenched market position the big banks hold in the Australian market,” Mr Chesler said.

“We’ve made it easy for people to invest in the bank sector by taking the stock selection decision making out of the investment process.  We offer investors the only exchange-traded fund (ETF) to gain pure, targeted exposure to Australian banks.  Market Vectors Australian Banks ETF which is available on the Australian Securities Exchange (ASX) under ASX code: MVB, is an efficient and cost effective way for investors to get exposure to Australia’s largest banks in a single trade.

“With a yield of 4.97% of the underlying portfolio, MVB tracks the Market Vectors Australia Banks Index, which currently provides diversified exposure to the seven largest and most liquid Australian banks.

“The Market Vectors Australia Banks Index caps any one bank’s weighting at 20 per cent to ensure no one bank dominates, removing the large capitalisation bias found in traditional market capitalisation weighted indices.  MVB is the only Banks ETF on the ASX,” Mr Chesler said.

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Craig Young

Australian banks have been among the strongest performing stocks in the Australian share market this year. Attractive dividend yields have been a primary driver of the banking sector’s outperformance in this low interest rate environment.

With valuations now very stretched, what lies ahead for the banks, particularly when quantitative easing in the US comes to an end?

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