Naomi Halpern became caught up in the Timbercorp saga after receiving bad advice from her accountant. Photo: Wayne Taylor/Fairfax MediaVictims of dodgy financial advisers have questioned the likelihood of David Murray’s consumer protection recommendations being implemented, raising doubts about the funding and competencies of the corporate regulator.
Storm Financial victim Frank Ainslie said the Australian Securities and Investments Commission was too underfunded to take on extra responsibilities.
“Government bodies just aren’t set up to be proactive. ASIC has been given more responsibilities but it has fewer funds,” he said.
“I do not believe ASIC has the resources or the ability to be proactive in situations like this.”
In the May budget it was announced ASIC’s funding would be cut by $120 million during five years.
Mr Ainslie was one of many investors who lost most of their life savings, equating to at least $3 billion, when the company collapsed in 2009.
“Storm’s profits looked good on paper … but it was overleveraged. My wife Helen and I sold our shopping centre for $1.1 million in 2007 and mortgaged our $600,000 house because the concept sold to us by Storm seemed very good,” he said.
“Now, I estimate we will get back about 26 per cent of our investment [through settlements with Macquarie Bank and Bank of Queensland] … not including the $300,000 we had paid in fees alone.”
In David Murray’s financial systems inquiry, he recommended strengthening product issuer and distributor accountability by improving the internal risk management in the product design process.
He also recommended ASIC be given proactive powers, including the ability to ban a product, when there was a risk of significant consumer detriment, and that financial advisers receive training and have a university degree.
But Mr Ainslie said even if advisers received better training, it would not weed out the “bad eggs”.
Another victim, Naomi Halpern, became caught up in the Timbercorp saga after receiving bad advice from her accountant of six years.
“The recommendations are very valid but the report provides no indication of how they will actually be implemented,” she said.
Like Mr Ainslie, Ms Halpern has her own qualms with the corporate regulator but she approved of many of the inquiry’s recommendations, particularly in regards to removing impediments to more-innovative product disclosure.
“I believe one of the key ways people can be protected is if all financial advice meetings between an adviser and investor are recorded,” she said.
“If there was a record of what had taken place, this would protect both the adviser and the investor.”
Ms Halpern’s accountant advised her to invest in schemes like Timbercorp and by the end of 2008 she was $650,000 in debt.
“I think the recommendation for a register of financial advisers is a good one but it also needs to include information about whether the adviser has been banned before and any other disciplinary action taken by regulatory bodies,” she said.
“But I don’t know if these recommendations will be enough to restore confidence in the system.”
David Murray. Photo: Christopher PearceAustralian insurers need to improve their guidance and disclosure when talking to consumers about the replacement value of their home in the event of a claim, or face government intervention forcing them to do so.
That is the recommendation from David Murray’s financial system inquiry, which recommended the federal government enact laws enforcing improved disclosure if significant progress is not made quickly by the industry.
“Government should consider introducing a regulatory requirement to provide this guidance at the point of renewal or on entering into a contract with a new insurer,” the report said.
Current regulation allows insurers to provide guidance on the replacement value of homes or contents without having to comply with personal advice rules.
The inquiry argued that this was not working and insurers were not typically providing guidance on replacement values.
“The inquiry believes that commercial disincentives mean insurers are reluctant to provide this type of guidance,” it said. Although many insurers provide online calculators to estimate replacement value, insurers typically refrain from giving guidance on the replacement value either over the phone or on a renewal notice.
The recommendations come after the federal government announced changes to allow unregulated foreign insurers to sell home cover in areas where prices are deemed to be high, such as North Queensland.
However, research from the Australian Government Actuary released last week found insurers were paying about $1.40 in claims for every $1 in premiums they received from customers living in the cyclone-prone area. Insurers argue that if the government allows unregulated players to enter the market Australians might not be able to sue their brokers if their insurers fail.
Insurance Australia Group managing director Mike Wilkins said he understood the inquiry’s recommendation for greater guidance.
“It highlights the importance of consumers making an informed choice by taking into account a product’s features and benefits as well as cost,” he said.
The Insurance Council of Australia, which represents some of the country’s biggest insurers, including Suncorp Group and IAG, said its members were working with the corporate regulator on whether they were able to provide enhanced advice.
“The uncertain Corporations Act boundary between personal and general advice discourages general insurers from providing more tailored information to consumers about their policies.”
Bring on the banks: Treasurer Joe Hockey, right, and David Murray in Sydney. Photo: Christopher PearceAnalysis: Banking sector reform will affect every Australian
Higher interest rates, lower credit card transaction costs and cheaper superannuation are likely if Treasurer Joe Hockey accepts the recommendations of the government-commissioned Financial System Inquiry.
Former Commonwealth Bank head David Murray spearheaded the wide-ranging report that aimed to shift the responsibility and cost of shoring up the strength of the financial system away from the government and taxpayers and place it with the banks.
He also raised the spectre of large changes to superannuation that will make it more competitive and add up to 40 per cent to the retirement income for an average weekly earning male.
The inquiry recommends the Reserve Bank of Australia ban merchants from surcharging for debit card transactions and that it set surcharge limits for credit card transactions that reflect the true cost of accepting the payment. This means companies such as airlines and ticket sellers would no longer be able to charge high fees to pay by credit card. They would now be limited to charging a credit card fee worth 0.5 per cent of the transaction cost.
Owners of high-cost credit cards such as American Express would continue to be charged higher surcharges, but with greater disclosure.
The report’s overhaul to the financial framework also seeks to reset the regulatory system to deal with the digital revolution, which will result in the entry of new players such as peer-to-peer lenders and supermarkets.
Mr Hockey says he is prepared to take on powerful interests in the financial services industry to boost Australians’ retirement incomes and increase competition in the banking sector.
The inquiry, which recommends a series of changes to strengthen bank balance sheets by mandating they hold more capital, has had some in the finance industry already say these could push up the cost of home loans.
“Capital holding recommendations have the effect of adding weight to loans and costs to borrowers, which could hurt already low first-home buyer rates, affect new housing starts and challenge seniors who are looking to downsize,” according to the Property Council of Australia.
Mr Hockey urged the banks to work with the government and regulators rather than launching a campaign against the recommendations.
“This is about the security of the financial system,” Mr Hockey said, noting that bank regulator the Australian Prudential Regulation Authority would be charged with finalising some details, such as the amount of money banks would have to hold as collateral in case the loans they made went bad.
“When David Murray was first appointed there was a criticism David Murray would be the voice of the big banks. Now he has made these recommendations. If APRA takes a similar view, that is up to them, as they are an independent prudential regulator.
“The banks would serve themselves best by working closely with APRA and having a considered path to manage this – I don’t think creating any public alarm or angst is going to help the banks.”
Mr Hockey said he was prepared to face a backlash from the major banks after recommendations calling for them to be required to hold billions in extra capital.
“Our charge is to do what is right to strengthen the Australian economy and ensure that the financial system is as robust as it can be,” he said.
“Now we have got to weigh up carefully the implications for financial services providers. But I want to emphasis we need to prepare now for the challenges that may lie ahead.”
Among its 44 recommendations, the inquiry called for a minimum floor on mortgage risk weights to even the playing field between the major banks and smaller banks. The big banks have said would force them to increase home loan interest rates or reduce dividends to shareholders.
The Murray report finds that competition among the banks would keep a lid on interest rates increases.
Mr Murray rejected claims by the big banks that higher capital charges would impose exorbitant costs on the system. The inquiry estimated that a one percentage point increase in capital would only result in loans increasing by 10 basis points – or 0.10 of a per cent.
Impacts on the cost to banks of funding a loan or to the broader economy were low.
Mr Murray used his press conference to attack chief executives of the banks over comments about the prospect of change before the report’s release.
“The public statements by the banks are wildly above those numbers. They are exaggerated. Hopefully, other experts will look at those numbers and conclude similar to ours,” said Murray.
The major banks have a cost advantage over regional banks because they are allowed to do their own estimates of how much money they require to cover bad mortgage housing loans. Smaller banks must use standardised risk, which is more than twice as high as the average for the major banks.
Mr Murray said Australians’ retirement incomes could be increased by up to 40 per cent if the Abbott government accepts recommendations aimed at bringing down superannuation fees.
He said the inquiry’s recommendations on superannuation would lead to reduced administration costs and fees that could see retirement incomes rise by 25 to 40 per cent.
He recommended that default fund My Super be replaced with a competitive mechanism for allocating default superannuation funds if it has failed to deliver significant fee reductions by 2020.
He also found that self-managed superannuation funds be banned from borrowing to buy assets such as property and shares.
Mr Hockey said reducing superannuation fees and boosting retirement incomes would be a “very key focus” of the government’s consultations.
“If we can get the fees of companies down, if we can get fees of intermediaries down, Australians will have more superannuation for their retirement, which is the entire goal of the superannuation system,” he said.
Mr Hockey called on Labor – which has opposed many of the government’s proposed budget savings in health, education and social services – to adopt a bipartisan approach on the Murray inquiry.
“In the same way there was bipartisan support for implementation of the Wallace inquiry, we are looking for bipartisan support for the implementation of the Murray Inquiry,” he said. “A strong and efficient financial system is vital to the long-term needs of the Australian economy and this is the sort of economic reform that Australia must embrace if we are to withstand some of the challenges that undoubtedly we will have to face in the future.
Shadow Treasurer Chris Bowen said he believed it was important that financial regulation, as far as possible, should be a bipartisan issue.
“This is a report which is important,” Mr Bowen said. “While Labor in office would not have gone about it the same way, we recognise the substantial report that has been presented to government and will work as constructively as possible to ensure any sensible recommendations here are implemented and implemented in a smooth a way as possible.”
Mr Bowen said he particularly supported the inquiry’s recommendation for reduced credit card surcharges.
A new trust-fund scheme will be created to ensure construction companies that collapse are prevented from keeping money that is owed to subcontractors after they complete a job.
The initiative is in response to an inquiry the state government commissioned in 2012 to look at the causes of insolvency in the $40-billion building industry. Bruce Collins QC chaired the inquiry.
On Monday, the Minister for Fair Trading, Matthew Mason-Cox, will announce the new retention trust scheme – the first of its kind in Australia – which will require construction companies to hold retention money in a trust fund to protect payments for subcontractors. Head contractors who fail to comply with new requirements will face fines of up to $22,000.
Up to 5 per cent of the cost of a contract is generally retained by the contractor until the subcontractor has completed a job and corrected any defects. The new trust scheme will ensure that contractors who become insolvent cannot use the money for their own purposes.
“Head contractors will be responsible for holding retention money in their own accounts, and NSW Fair Trading will be checking audit reports that require head contractors to show they are keeping trust accounts as required,” Mr Mason-Cox said.
“This will end the widespread industry practice of using subcontractors’ trust money for the head contractor’s working capital purposes.
“At the end of the day, this money belongs to subcontractors and it’s about time it was protected as such.”
The scheme will initially apply to head contractors and their direct subcontractors for projects valued at more than $20 million.
“While most builders do the right thing and pay their subcontractors on time, we need to protect subcontractors’ retention money if a construction company collapses,” Mr Mason-Cox said.
“The changes will also provide greater transparency in relation to payments to subcontractors.”
The government is also looking into the possibility of making company directors personally liable.
“These reforms will deliver better outcomes for subcontractors while minimising red tape for the industry,” Mr Mason-Cox said.
Master Builders Association NSW executive director Brian Seidler said the industry supported the initiative.
“It’s a workable solution to ensure subcontractors’ retention money is secure,” he said.
The NSW government will also conduct a broader review of security payment laws.
What’s essential: The Living Room. Photo: SuppliedFREE TO AIR
The Living Room, Ten, 7.30pm
The entire episode of this breezy lifestyle program is devoted to its popular segment, “Hot or Not”, in which the panellists, Amanda Keller, Bondi vet Chris Brown, TV chef Miguel Maestre and new-to-TV builder Barry Du Bois examine new gadgets and gizmos to determine if they deserve the tag “must-have”. Lots of froth and bubble predicted plus well-placed advertisements for things we simply must have.
Death Comes to Pemberley, ABC, 8.30pm
There has been much sniggering among the dainty ladies of this grandest of stately homes about how on earth the dashing Fitzwilliam Darcy (Matthew Rhys, gay Kevin from Brothers & Sisters) settled for the homely Elizabeth (Anna Maxwell Martin, The Bletchley Circle). Schoolgirl venom aside, well might they question the pairing that ended so promisingly in Jane Austen’s novel Pride and Prejudice. In the three-part television adaptation of the late novelist P.D. James’ murder-mystery of the same name, which imagines the Darcys’ future as a sort of period special of Midsomer Murders, the famous romance has been looking a little worse for wear. There is an awful lot of scowling and sulking, and zero chemistry between them. Still, there is a grisly death in the woods to deal with, the killer potentially one of their own. Terribly well made and beautifully written, if conceptually a bit outrageous.
Sex in the World’s Cities, SBS2, 9.20pm
This strange program, which has so desperately tried to be titillating but so far has succeeded only in being embarrassing and dull, tonight turns its attention on our own Sin City, Sydney. The narrator, dispensing with dreadful puns and overused innuendo, is so ridiculously twee she is surely played by a comedian. The sexploits of Sydney here include the national Sexpo exhibition, a man who paints portraits with his penis, and a sex shaman who specialises in non-contact orgasms for women of a certain age. Despite the ludicrous narration, the segment on sex workers for the disabled is genuinely moving. But there are two disturbing things: the narrator’s statement that, “All the local lifeguards are gay. It’s a good way for them to be part of the population”; and the obscurely explicit silhouettes of R-rated pornographic scenes that flashed between commercial breaks.
American Gangster (2007), Channel Seven, 9.30pm
In American Gangster, a solid retelling of the well-worn crime film set-up of the daunting mobster and the dogged cop who relentlessly pursues him, Denzel Washington and Russell Crowe are distinguished by the way they move. Washington, as 1970s Harlem drug lord Frank Lucas, rolls across the screen, his shoulders loose and rhythmic; Crowe, as police detective and then prosecutor Richie Roberts, has a lower centre of gravity and a bull’s build – he’s perennially marching upwards as his assured adversary strolls along. Ridley Scott overdoses on period paraphernalia – he’s better with imaginary production design than period – but the lead actors make the most of Frank’s climb, as he imports nearly pure heroin from the Golden Triangle inside the coffins of US soldiers killed in Vietnam. There’s an obvious debt to Sidney Lumet’s films about police corruption in New York, but the real draw is the eventual confrontation of the two adversaries, not the story woven around them.
A Touch of Sin (2013), World Movies (pay TV), 7.20pm
Acclaimed internationally, including a win for best screenplay at the 2013 Cannes Film Festival, but never cleared for release in its homeland despite reportedly getting past the state censors, Jia Zhangke’s corrosive quartet of stories depict a China where the inadequacies of a vast state commercial system and the lack of alternative solutions lead to the embrace of violence, whether against others or self-inflicted. A griping, unhappy ex-employee (Jiang Wu) at a former state enterprise goes on a bloody killing spree, while a young worker (Lanshan Luo) living and working at an electronics plant manufacturing gadgets for the Western consumer struggles to find something to cling onto in life. With composed takes that unfold with grim clarity, Jia shows a world where lives revolve around the machinations of commerce and the individual is lucky to be ignored instead of being ground down. It is barely disguised social criticism and arresting filmmaking, and the Chinese government’s wariness of it is sadly understandable.