He is my long-time colleague and friend so I am biased, but I believe this is a time to record the remarkable achievement of Alan Kohler in eliminating exorbitant commissions in financial planning and advising.
A last gasp lobbying attempt by bank-owned and other financial product institutions to go back to the bad old days triggered a set of remarkable events.
Kohler began the campaign against exorbitant commissions many years ago in Eureka Report and, to its credit, much of the financial planning industry responded with major improvements as they moved from being commission salespeople to professional financial advisers.
But there was still a rump in the industry that was hooked on the old, bad ways. When the gullible Arthur Sinodinos caved into bank lobbyists and tried to turn back the clock, Kohler, via Eureka Report and supported by Business Spectator and The Australian, returned to the campaign trial.
Given the current state of media, stunningly, many commentators from rival media organisations backed him. They realised that this was one situation where regulation was required because of bad practices. Journalist rivalries were set aside for the community good. In journalistic terms, this was a magnificent event.
Most realised that Arthur Sinodinos had been sucked in by bank lobbying and that Sinodinos thought he could return to the bad old days by changing the regulations. With Sinodinos sidelined, because he was also gullible in his private life, it was left to his replacement Mathias Cormann to declare: “We do not intend to reintroduce conflicted remuneration or sales commissions for financial advisers.”
Mathias Cormann is a first class minister and sent out all sorts of confused messages to avoid the tag “we were wrong”. But the simple truth was that Sinodinos was wrong and Mathias Cormann knew it.
Australia is blessed with well run banks and excellent bank CEOs. But the Commonwealth bank, National Australia Bank and Westpac each went deeply into wealth management not fully realising that the businesses they acquired had, as a base strategy, salespeople receiving big commissions for selling their products.
In the old days this was transparent because these people were tagged ‘insurance salesmen’ (there were very few women selling insurance back then). But then they became known as ‘financial planners’ or ‘financial advisers’. The advice function got confused with the product-selling commission. It was a cancer.
Many Australians revolted at these practices being introduced into superannuation and as a result, one third of our enormous superannuation pool is now in self-managed funds. The wealth management institutions would be managing much of that money but for their bad commission practices. The bank-owned wealth management companies and other institutions stupidly lobbied against the self-managed funds with all sorts of self-interested and false scare campaigns instead of changing their businesses practices.
Via Eureka Report and other outlets Kohler showed Australia the damage these high-commission practices were inflicting on ordinary Australian savers.
To his great credit, in the previous government Bill Shorten realised that the only way to stop the exorbitant commissions was to regulate. He was doing the banks and institutions a favour but they did not realise it. As soon as Arthur Sinodinos became Assistant Treasurer the bank and financial product institutions knew they had a minister they could “work with”. Their lobbyists were in his ear almost from day one.
I watched Mathias Cormann perform very well in opposition and I think he is going to be a real powerhouse in government. When companies persist with bad practices you need regulations.
Our bank CEOs needed to stop the lobbying and examine their business model. I recognise that the complexity of advising when people are merging superannuation and aged pensions is time consuming and that retirees and those saving for retirement will always not pay for advice unless it is concealed via commissions.
But that’s a nonsense argument. The business model must be changed and should have been changed long ago when self-managed funds started to grow.
Meanwhile in this time of change in our profession, good journalism is well and truly alive.
To see what needs to be done, read Don’t tweak Minister, rethink, (UNLOCKED) March 26.