Tag: InvestorDaily

Shareholder class action looms for AMP

From InvestorDaily.

Global litigation firm Quinn Emanuel Urquhart & Sullivan is investigating a class action lawsuit against AMP for shareholder losses following revelations at the royal commission last week.

Giving evidence before the royal commission, AMP head of financial advice Jack Regan admitted his firm lied to ASIC on 20 separate occasions about its practice of providing ‘fees for no service’ to financial advice clients.

Quinn Emanuel has backing from global litigation funding firm Burford Capital for the potential class action.

The class action is open to shareholders who acquired shares between 24 May 2013 and 16 April 2018.

Quinn Emanuel partner Damian Scattini said: “The revelations of AMP’s misconduct are especially upsetting given the people who were hurt – the ordinary Mums and Dads who as shareholders gave AMP one of Australia’s largest shareholder registers, who have now lost their savings due to its dishonesty, and who as customers were charged for services AMP has admitted they never received, all so executives could make hefty bonuses.”

“QE has been investigating AMP’s precipitous share price fall even before the most recent revelations of misconduct, and having Burford, the world’s top litigation finance company, in place as our partner means we’re ready to move quickly on behalf of shareholders,” Mr Scattini said.

Burford managing director Craig Arnott said: “The conduct admitted at the Royal Commission is starkly at odds with AMP’s responsibilities and shareholders’ legitimate expectations, requiring redress so that AMP’s shareholders can recover the value that has been lost.

“Burford is glad to join forces with Quinn’s first-rate team so we can help deliver that result for shareholders, which we hope will be as swift as possible.”

BT considered ending ‘share of revenue’

From InvestorDaily.

Public hearings into the financial advice sector continued on Friday as BT Financial Advice general manager Michael Wright continued giving evidence.

Counsel assisting Rowena Orr grilled Mr Wright on the remuneration practices of Westpac/BT and whether its planners could be considered professionals when they are incentivised with sales targets.

Mr Wright said that while advisers are not viewed as ‘professionals’ by Australians in the same way that doctors are, the perception is changing for the better.

Furthermore, he said, the ‘balanced scorecard’ for Westpac advisers will be changed to include more non-financial factors.

“We’ll be setting peoples’ remuneration off their qualifications, based off their competency as an adviser, based off the standards that they go through with advisers,” he said.

“We will not set people’s remuneration – fixed or variable – based off how much money they write,” Mr Wright said.

However, Ms Orr pointed out that one-fifth of the ‘balanced scorecard’ for the company’s advisers will include financial measures.

“We debated this long and hard. The reality is we want to have a viable, sustainable, professional business. We’ve not a charity,” he said.

“We considered removing revenue from the scorecard and having 100 per cent non-financials,” Mr Wright said.

From 1 October 2018, Mr Wright said, BT will be ending grandfathered commissions for superannuation and investments – although risk commissions will remain (as per the Life Insurance Framework).

When it comes to the advice business he oversees, Mr Wright said he would be “delighted” if BT moved to a completely fee-for-service model.

However, with his “BT product provider hat on”, he said there is a first-mover disadvantage to being the first institution to end grandfathering completely.

ASIC resistant to role as ‘competition champion’

From InvestorDaily.

In ASIC’s post-draft submission to the Productivity Commission’s Inquiry into competition in the Australian financial system, the corporate regulator said it “support[ed] the Productivity Commission’s recognition of the importance of ASIC having a broad, proactive competition mandate”.

“An explicit and broad competition mandate for ASIC would ensure we have a clear basis to consider and promote competition in the financial system,” ASIC’s submission report said.

A broad mandate would allow competition to be factored into ASIC’s regulatory decision-making, as well as the capability to “address market failure as a driver of misconduct or poor consumer outcomes”.

ASIC also acknowledged previous instances of “uncertainty” regarding “if and how ASIC could consider competition factors”, but pushed back against the idea of actually regulating competition.

“Having a broad competition mandate – to ensure we can appropriately incorporate competition considerations into our existing role as a market conduct regulator – would not make ASIC a competition regulator,” the submission report said.

“We would not have a role in enforcing competition laws – for example, regulating corporate transactions from a competition perspective or monopolies, bringing abuse of market power cases, or regulating pricing and access regimes.”

The regulator added that it supported the co-operation of different regulators in tackling competition issues and the value of learning from each other.

However, ASIC pointed out that each regulator had its own specified area of expertise and “therefore best placed to assess how competition should be weighed and balanced within its area”.

“While we appreciate the Productivity Commission’s concern to ensure that all regulators give appropriate consideration to the competition impacts of their decisions, we are not sure that the role of the competition champion, as envisioned in the draft report, is necessarily the best option to achieve that goal,” the submission report said.

Furthermore, ASIC highlighted the “significant role” of the Australian Competition and Consumer Commission as a regulator of competition “for the entire economy”, as well as its role as a “competition advocate”.

“We acknowledge and support the ACCC’s establishment of its Financial Services Unit, and the role it plays in the financial sector,” the submission report said.

“ASIC maintains a strong working relationship with the ACCC, and welcomes the ACCC’s views and input, including in our work to encourage positive consumer outcomes through effective competition.”

Member Personalisation the ‘New Paradigm’

From InvestorDaily.

Super funds must embrace digital, personalised advice if they want to retain their high-balance members, says industry veteran and SuperEd founder Jeremy Duffield.

Jeremy Duffield had a 30 year career at Vanguard between 1980 and 2010, and established the US indexing giant’s Australian presence in 1996.

Mr Duffield left Vanguard in late 2010 to co-found digital advice, education and member engagement fintech start-up SuperEd with former Westpac executive Hugh Morrow.

SuperEd received a $5 million funding boost in January 2018 from investors including former Macquarie director Mark Johnson and Shadforth founder Kevin Bailey.

The company offers digital member engagement services to super funds, including retirement income forecasts, member relationship management, education, and intra-fund advice.

“Personalisation is going to be a huge trend, because it’s what people expect in everyday life now,” Mr Duffield told InvestorDaily.

He differentiated SuperEd from other ‘robo-advice’ businesses that are mostly calculator-based and “leave it up to the consumer” to interpret the results of the calculator.

“That’s always been unrealistic – the numbers don’t speak for themselves, members need more than that and they need the story. We’re trying to work with super funds to tell the story,” Mr Duffield said.

SuperEd is the engine behind former Challenger executive Paul Rogan’s start-up Retirement Essentials, which helps retiring Australians apply for the government age pension.

SuperEd’s other clients include a corporate super advice group, group insurer AIA and “one of the large Victorian super funds”, said Mr Duffield.

Commenting on the industry’s transition to digital advice, Mr Duffield it is “disappointingly slow” – but it is happening.

“They’re hiring digital chiefs, they’re building up their web capabilities, they’re investing in CRM – there are signs.

“But it does feel like starting Vanguard Australia all over again – I’m out there in front trying to get people to change the way they do things,” he said.

Having helped drive down the cost of investment during his time at Vanguard, Mr Duffield is looking to do the same for the advice process.

“I think there’s more value to be added through advice than there is product,” he said.

Mr Duffield said he is “fully confident” that the trend towards digital advice will develop over time.

“We might be early, but we’re definitely in the right place. These changes that we’re betting on just have to happen,” he said.

Open Banking – Do Not “Bombard” Clients

From InvestorDaily.

The open banking regime could lead to more competition within financial services provided it doesn’t flood Australians with countless options, according to King & Wood Mallesons.

A panel of industry representatives at the ASIC Forum 2018 in Sydney this week discussed the characteristics of a strong open banking regime, arguing that the customer’s best interests must be kept in mind.

Panellist and head of the government’s Review into Open Banking, King & Wood Mallesons partner Scott Farrell, said the nascent data industry should be working towards creating greater convenience for customers.

“I hope the creative and innovative data industry can provide something that helps customers, rather than bombard them just with information,” Mr Farrell said.

“That’s a measure for its success. If the best that that industry can do is just bombard people with a thousand choices, then it’s failed Australian customers.”

He pointed out that competition alone was not significant in and of itself, but rather a means to an end.

“[Competition] doesn’t actually mean anything for a customer. It’s the choice and convenience that means something for a customer.

“That might come from competition, but you can’t feed your family with competition,” Mr Farrell said.

Co-panellist and ‘neobank’ Xinja co-founder and customer innovation director Van Le said the open banking regime should provide data in order to help customers make informed decisions.

However, the data or information should not be “so much that consumers get confused” such that “the whole benefit of open banking is lost and becom[es] a morass of indecision”.

“The real challenge for us, I think as an entire industry, is: how do we facilitate those choices with enough information, in the right context, giving customers control, so that in the end of the day, decisions that people make are decisions that people can be satisfied with?” Ms Le said.

Banks Hamstrung by Digitisation

From InvestorDaily.

The global banking sector, which has benefited from its “inertia” for decades, is under cost pressure as it attempts to reconcile legacy IT systems with a newly ‘digitised’ front end, says Ariel Investments.

Speaking in Sydney, Chicago-based Ariel Investments director of research for international and global equities Chaim Schneider said banks are transforming “tremendously” as they shift from ‘offline’ bank branches to the online world.

“Banks are absolutely making a lot of investments in mobile, in adapting to the new paradigm, because clearly the new world around them is changing tremendously and rapidly,” Mr Schneider said.

“But the problem is that banks were not designed for this way,” Mr Schneider said.

Many banks were still using IT architecture that could be up to 50 years old in a “coding language which was not designed for an omni-channel world,” he said.

“They have these back ends, these core banking platforms, that are sub-optimally established, and then they have this front end, where they’re investing heavily in digital and mobile and online banking, and they need to bridge the gap between the two.

“But in doing so, this patchwork comes at a significant cost. Part of it has to do with simply the infrastructure costs with making these investments, which are huge.”

A further cost-related pressure on banks was the open banking regime and the increased competition this would bring to the sector, he added.

“Banks, more than anything else, benefit from inertia. And you can hope in some ways, this threat will be mitigated by other factors, but either way it’s a real threat challenging the costs of these institutions.”

Banks are also looking to “future-proof” their branch networks, he said.

“Effectively, banks around the world are taking steps to reshape the branch network to future-proof their branch network,” Mr Schneider said.

“But there are significant limits and constraints on their abilities to do so.”

He said the closure of bricks-and-mortar bank branches was often seen as a cost-cutting measure – but that this was in fact hurting banks in other ways.

“Strange as this may seem, the majority of people around the world in country after country look at that bank that they may pass on their way to work every day and believe their cash, their deposits, are inside the vault in that bank.

“We all know the way banking systems work these days doesn’t exactly work that way. But that is truly ingrained in [the] mindset of people around the world,” Mr Schneider said.

“And what that means is when that bank branch closes, banks in that region sometimes have a problem sustaining those customer relationships amongst both retail customers as well as small businesses who just like the presence, the comfort, of driving by their bank on a regular basis.”

He also pointed to the “very important role” bank branches played as “deposit-gathering frameworks for banks”.

“The raw material for any bank is deposits. Without deposits, banks can’t make loans. And the branches play a mission-critical role in deposit-gathering, in particular low-cost deposit gathering.

Crypto Is Just A Side Show

While there may be risks to individual investors, a report from S&P Global Ratings “The Future Of Banking: Cryptocurrencies Will Need Some Rules To Change The Game”, say digital currencies such as Bitcoin do not have much capacity to meaningfully upset the financial services industry at large. This from InvestorDaily.

Despite the buzz surrounding the virtual currency, the report said: “As far as rated financial institutions’ risk exposure is concerned, however, S&P Global Ratings believes that it is much ado about nothing.

“In our opinion, in its current version, a cryptocurrency is a speculative instrument, and a collapse in its market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate.”

And if crypto markets were to collapse, the brunt of the impact would not fall on major banks or its credit ratings but rather on retail investors, given they were the main contributors to activity in this market, with investors in the US, China, Japan and South Korea seemingly most exposed.

“We expect banks rated by S&P Global Ratings to be largely insulated, given that their direct or indirect exposure to cryptocurrencies appears to remain limited.”

The contribution of cryptocurrencies to global wealth was also described by the report as “limited”.

“For example, the global stock market capitalization reached approximately $80 trillion at year-end 2017, meaning that cryptocurrencies are still a marginal instrument.

“Therefore, we do not foresee any systemic wealth-effect risk.”

And even if cryptocurrencies were backed by central banks and became an asset class, the effect on firms in the financial system would be “gradual”.

“We believe that the future success of cryptocurrencies will largely depend on the coordinated approach of global regulators and policymakers to regulate and enhance market participants’ confidence in these instruments,” said S&P Global Ratings Financial Institutions Sector Lead Dr. Mohammed Damak.

Issues of consumer protection and illegal activity would need to be addressed by supranational bodies such as the G20, the report pointed out.

It also discussed the potential of the technology underpinning cryptocurrencies, blockchain, as a “positive disrupter for various financial value-chains”.

“If widely adopted, blockchain could have a meaningful and lasting impact on the celerity, traceability and cost of financial transactions.

“The financial market infrastructure segment might also see medium-term benefit from cryptocurrencies and blockchain through the launch of new income-generating products, such as futures or exchanges based on cryptocurrencies, or the replacement of current practices by new ones based on blockchain,” the report concluded.

NAB Job Cuts 1,000 Jobs as ‘Digitisation’ Takes Hold

From Investor Daily.

NAB staff were informed by chief people officer Lorraine Murphy yesterday that “the next phase in transforming our business is underway, as part of a three-year process”.

In November 2017, InvestorDaily reported on the major bank’s plans to cut 6,000 jobs and create 2,000 new digital-focused jobs by 2020.

A NAB spokesperson told InvestorDaily approximately 1,000 jobs will be cut every six months for the next three years.

InvestorDaily understands the exact number of job losses in the first half of 2018 will depend on the number of voluntary redundancies and redeployments into digital-focused roles.

“The proposed new structure will reduce the layers and complexity in the bank so that we can be simpler, make decisions faster and be even closer to our customers,” the bank said in a statement.

Ms Murphy said there was “no doubt” this transition was right for the bank business.

“We will acknowledge the contribution that people who are leaving us have made. We will show through our actions that we care,” said Ms Murphy.

Staff that leave the bank will have “world-class support” through the bank’s career transition program titled ‘The Bridge’, which will offer employees made redundant with six months of support and resources.

“We said we would provide the utmost care and respect for all of our people. This remains our priority,” Ms Murphy said.

“I encourage you to ensure that all of our people understand the changes and are supported, and that those who remain with us can deliver the type of bank we have promised our customers – a simpler, faster bank.”

InvestorDaily also reported on comments made by NAB chief executive Andrew Thorburn, who signalled the number of bricks-and-mortar branches was declining.

“What’s happening is that more and more customers are using their mobile device and online banking, and some branches are being used less and less and less,” Mr Thorburn said in November.

“And as that happens, like any business, we need to adjust.”

However, in a statement, the Finance Sector Union (FSU) expressed concerns that the job cutting “does not meet community expectations”, pointing out that with the royal commission underway, Australian banks are being watched closely and NAB should take this responsibility to “rebuild its brand”.

“This is not just 6,000 workers that will lose their jobs – it’s 6,000 people that will have to go home and tell their families they no longer have work,” said FSU national secretary Julia Angrisano.

Many of the workers whose jobs would be axed or made redundant will have been at the bank for years and were a driving force behind NAB’s profits, Ms Angrisano pointed out.

“It’s not like NAB is in trouble – they can afford to retrain their workers. They made $6.7 billion dollar profit last year,” she said.

“Post retrenchment support is too little too late, workers need to be re-skilled to move into the jobs of the future now.”

No legal barriers for royal commission witnesses

From Investor Daily.

The initial hearing of the royal commission into banking, superannuation and financial services was held in Melbourne yesterday, and commissioner Kenneth Hayne QC had a stark warning for institutions.

All four of the major banks have confirmed they will waive non-disclosure agreements that could stop people from testifying to the royal commission.

But in comments during the hearing, Mr Hayne confirmed that even if they were not waived, confidentiality agreements (or ‘non-disparagement’ clauses) would not be a “reasonable excuse” to avoid a question in a hearing of the royal commission.

“It seems to me to follow that answering a notice or a summons would not amount to a breach of any confidentiality or non-disparagement clause,” Mr Hayne said.

Furthermore, under s6M of the Royal Commission Act 1902, no injury can be done to a person who gives evidence or produces a document under a notice or summons, he said.

“Suing the person would almost certainly fall within that prohibition,” Mr Hayne said.

“An institution which sought any form of legal redress against a member of the public or a whistle blower seeking to volunteer information to the commission in anticipation of the possible exercise of the the commission’s coercive powers would be taking a step which would very likely provoke two immediate consequences.”

First, the commission would be “very likely indeed” to exercise its compulsory powers to secure the information in question, Mr Hayne said.

“Second, the very fact that an institution sought to prohibit or prevent the disclosure of the information would excite the closest attention not only to the lawfulness of that conduct by the institution, but also what were the institution’s motives for seeking to prevent the commission from having that information,” he said.

Public submissions to the royal commission via the online form on its website are “very important to our work”, he said.

Indeed, the royal commission will be closely comparing the industry participant submissions about misconduct with public submissions, Mr Hayne said.

“One of the consequences of our adopting this sequence of action – of first asking industry participants to identity misconduct and conduct falling short of community standards and expectations and then asking the public to make submissions – is that it may help us to identify whether there is a gap between what industry participants now say is relevant conduct and what member of the public see as being relevant,” he said.

The royal commission made initial requests for information of industry participants on 15 December 2017, which were delivered on 29 January.

Further requests limited to events of misconduct identified over the past five years were made on 2 February, with answers sought by 13 February.

Royal commission points to big bank dominance

From Investor Daily.

On Friday morning, commissioner Kenneth Hayne QC published a background paper titled Some Features of the Australian Banking Industry.

The paper points to the role of authorised-deposit taking (ADI) institutions, which hold 55 per cent of the total assets of Australian financial institutions.

It also points to declining competition in the the banking sector, with the number of credit unions falling due to consolidation and the major banks holding 75 per cent of total assets held by ADIs in Australia.

The paper notes that five of the 20 listed companies that make up the ASX20 are banks, noting that the major banks have “generally achieved higher profit margins than other types of ADIs”.

“The major banks earned a profit margin of 36.4 per cent in the June quarter 2017. Major banks’ net profit after tax in the June quarter 2017 was $7.8 billion,” noted the paper.

While the commission noted that precise international comparisons are difficult, it found that Australia’s major banks are “comparatively more profitable (as assessed by net income as a percentage of total assets) than some of their international peers in Canada, Sweden, Switzerland and the UK”.

“Similar conclusions can be reached for international comparisons for Australian major banks’ return on equity,” said the paper.


The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, will hold its initial public hearing at 10am this morning in Melbourne.  The hearing will be streamed lived through the Royal Commission’s website.