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Victims of dodgy advisers have doubts about ASIC’s competencies

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.
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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.”

Insurers need to improve guidance given to consumers, Murray inquiry says

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.
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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.”

Treasurer Joe Hockey urges banks to co-operate with regulators

Bring on the banks: Treasurer Joe Hockey, right, and David Murray in Sydney. Photo: Christopher PearceAnalysis: Banking sector reform will affect every Australian
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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.

New trust fund scheme promises to protect subcontractors against phoenix companies

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.
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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.

Friday, December 12

What’s essential: The Living Room. Photo: SuppliedFREE TO AIR
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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.

Bridget McManusMOVIES

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.

Craig Mathieson

Sunday, December 14

Actual teenagers: Nowhere Boys. Photo: SuppliedFREE TO AIR
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Nowhere Boys, ABC, 6pm

What a relief it is to watch a TV show made for teenagers that is not populated by 30-year-olds creepily passing for 16 or scrubbed-clean Disney princesses who are 10 years into their career and two years off a Britney Spears-style breakdown. Even better, Nowhere Boys is an Australian production filled with actual teenagers in a familiar bushy suburban setting that doesn’t look like the mono-culture that is Ramsay Street. Tonight, as the police search for missing Andy intensifies, Felix (Dougie Baldwin from Upper Middle Bogan), decides they need to find someone with another water element and “magical potential” to bring him back. Enter new girl Saskia.

Shaun Micallef’s Stairway To Heaven, SBS One, 7.30pm

As a young man, Mad As Hell’s Shaun Micallef considered joining the priesthood. And while the Catholic church’s loss (can you imagine the sermons!), has been TV’s gain, Micallef has since wondered if he missed out on an opportunity to find the answers to the big questions in life. What to do? Travel to India, of course, where 900 million Hindus can’t be wrong. He wants to meet people who are very certain about their faith and in doing so dips a toe into the Ganges, meets the King of Puri and looks to “find a guru to find me”. In lesser hands, this type of spritual quest could easily turn into self-indulgent fluff. Heck, even the Beatles succumbed to a little too much introspection when they hit Rishikesh in 1968. Micallef, however, is a deft hand at self-deprecation and his quest to discover if there is “greater purpose than being a semi-professional Australian TV personality” makes for a funny and watchable journey. A thoroughly thoughtful antidote to Christmas craziness and consumption.

Louise Rugendyke

After the Wave, SBS One, 8.30pm

Given the unimaginable tragedy of the 2004 Boxing Day tsunami, it may seem cruel or perverse to describe a documentary on it as haunting and beautiful. London-based Australian filmmaker Amanda Blue rounds up a handful of survivors who lost loved ones when the wave hit the resorts of Thailand, as well as the forensic scientists given the grisly task of identifying the remains of victims. What emerges is an emotionally charged account of people who have overcome loss and grief and created legacies for the departed.

Paul Kalina


The Fog of War (2003), ABC2, 10.45pm

Somewhat wary and definitely unwilling to give an inch of ground in his battle with the past, Robert S. McNamara, the former US defence secretary who was often described as the architect of the Vietnam War, is one sure-footed 85-year-old in Errol Morris’s Academy Award-winning documentary. The determined McNamara, who died in 2009, is the perfect subject for Morris, the pre-eminent documentary maker of the last 30 years. A director whose often-pointed sense of tone and eye for detail is allied with an investigative thrust, he captures McNamara in all his peculiar glory, both as an individual and a product of the age he lived through. Morris doesn’t pursue McNamara, he draws him out, knowing that the technocrat will attempt to instil his own view, his own governing logic, on each flashpoint in history he was witness to. Ultimately the film doesn’t indict McNamara; it proves to be so fascinating because of the depth of understanding it provides.

The First $20 Million is Always the Hardest (2002), Comedy Movies (pay TV), 8.30pm

A satire of Silicon Valley at the end of the hardware era – when chip design was crucial, Microsoft was an unparalleled giant and the internet was only just starting to find mainstream traction, Po Bronson’s 1997 book is a period piece, but it’s aged far better than Mick Jackson’s ungainly movie adaptation.

The First $20 Million takes the technological twists and black humour and turns it into the cliched archetype of a group of unkempt young men who triumph against an overbearing oppressor. It’s Revenge of the Nerdswith a PC.

Assigned to the scrapheap at a cutting-edge research facility, Andy Caspar (recent co-star of The Code Adam Garcia) and his oddball buddies stumble onto a paradigm-shifting solution to their unwanted assignment, which naturally creates a whole new set of problems. The book was about very smart people whose path to visionary status was tangled up in commerce and greed, but the film is about geeks we are supposed to find amusing.

Craig Mathieson

Economy: Not good but not disastrous

currencyDon’t drop your bundle. It’s not clear the economy has slowed to the snail’s pace a literal reading of the latest national accounts suggests. As for the talk of a “technical income recession”, it’s just silly.
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What is clear is that, at best, the economy continues to grow at the sub-par rate of about 2.5 per cent a year, a rate insufficient to stop unemployment continuing to edge up. This has been true for more than two years.

A literal reading of last week’s national accounts from the Bureau of Statistics says the economy – real gross domestic product – grew by a mere 0.3 per cent in the September quarter, down from growth of 0.5 per cent in the previous quarter and 1 per cent in the quarter before that.

But if we’ve learnt anything by now, it’s that it’s folly to take the quarterly national accounts too literally. They’re just a first stab at the truth, based on incomplete and often inaccurate data.

The initial estimate for growth in any quarter will be revised – up and down – up to a dozen times before the bureau is satisfied it has got it pretty right.

Reserve Bank governor Glenn Stevens referred recently to “the vagaries of quarterly national accounting”.

Frankly, I don’t believe the economy  slowed markedly in the three months to September, or the six months, for that matter. If it were true, surely we wouldn’t need to be told about it by the national accounts two months after the fact.

Since all individual economic indicators have their weaknesses and inaccuracies, meaning none should be taken too literally, the only adult way to proceed is to see if the signal coming from one key indicator fits with the overall message coming from the other indicators.

On the basis of what all the other indicators are saying, the forecasters – official and unofficial – expected growth in the September quarter of 0.6 per cent or 0.7 per cent, which would be consistent with the view we’re still travelling at about 2.5 per cent a year.

When the published figures turn out to be half that, this suggests either that all the forecasters got something badly wrong, or that it’s the published initial estimate that’s wrong and likely to be revised up to something closer to what we expected.

The way we’ll be able to tell whether the economy really has slowed to a crawl is by watching the rate at which unemployment rises in coming months. At the 2.5 per cent a year speed, it’s worsening at a rate averaging 0.1 percentage points a quarter. If that average rises, we’ll know things are much worse than they were.

As for the “technical income recession”, it proves little. Make a note that, in this context, the word “technical” is warning that what follows is based on an arbitrary rule with little sense to it.

“Technical” means two quarters of contraction in a row equal a recession. So one quarter of huge contraction isn’t a recession, and two negative quarters separated by a zero quarter aren’t a recession, but two consecutive negative quarters are a recession no matter how tiny the falls (or whether one is subsequently revised away).

“Real gross domestic income” is real gross domestic product adjusted for the change in our terms of trade during the quarter. Since, as we’ve seen, real GDP growth was weak in the past two quarters, the deterioration in our terms of trade in both quarters caused real income to decline by 0.3 per cent in the June quarter and by 0.4 per cent in the September quarter.

What happens to our terms of trade – and, hence, our aggregate income – is important. But, in this particular case, it’s hard to get too excited.

As Dr Shane Oliver, of AMP Capital, has explained: “There is a danger in dwelling too much on the slump in real gross domestic income flowing from the falling terms of trade . . . while swings in the mining and energy export prices are very important for resource companies, and hence for government revenues, their impact on the rest of the economy is far more modest.”

In other words, the main impact is on mining company profits, and mining is about 80 per cent foreign owned. More their problem than ours.

If I thought the economy was sliding into genuine recession I’d say so. But I don’t believe in exaggerating the bad news because it makes for more exciting betting on financial markets, makes a better story or because you’ve always hated whichever party happens to be in power at the time.

Ross Gittins is the economics editor.

Standards and commissions for financial advice ripe for change

The wealth industry needs to overhaul commission structures for financial planners and redefine misleading advice terms to protect consumers.
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Those were two of several ­recommendations outlined in David Murray’s inquiry, which argues the advice industry needs to take major steps to create a culture that focuses on consumer interests.

Mr Murray’s inquiry also pushes for higher education standards for planners, and stronger powers for the corporate regulator to crack down on wayward financial professionals, among others.

The federal government needed to mandate that planners hold relevant tertiary degrees and prove their competence in specialist areas such as superannuation, it found.

Mr Murray, the former chief executive of Commonwealth Bank of Australia and chairman of the inquiry, called for the term “general advice” be renamed and planners disclose their ownership structures to make it clear to consumers whether they are receiving advertising or financial advice.

Mr Murray urged the federal government to change laws to make the cost of upfront commissions for insurance no more expensive than ongoing commissions.

“This would reduce incentives for churning [swapping customers from one insurer to another to get more expensive commissions] and improve the quality of advice on life insurance,” the final report, released on Sunday, said.

The recommendation comes after a damning report from the corporate regulator, which found one in three ­advisers focused more on winning commissions than serving their clients.

About nine in 10 advisers ­recommending life insurance are paid an ­upfront commission of between 100 and 130 per cent of the first year’s premium, plus between 10 and 13 per cent of the annual premium in ­following years.

Nearly six out of 10 life policies are sold through financial advisers, the Australian Securities and Investments Commission says. The Murray inquiry recommended a “level” commission structure, ­requiring that the cost of an upfront ­commission is not greater than the ongoing commission.

ANZ Bank’s chief executive of global wealth, Joyce Phillips, said: “We are supportive of an industry review into remuneration structures of life ­insurance that would look at addressing upfront commissions and the potential for conflicted remuneration.”

The Murray inquiry also called for the term “general advice”, which ­covers advertising and sales material highlighting the pros of financial products, to be scrapped. “Consumers may ­misinterpret or excessively rely on guidance  . . . when it is described as ‘general advice’,” it said.

Will Hamilton, a financial adviser with Hamilton Wealth Management, supported the change.

“General advice can be seen as product sales – it’s as simple as that. This is important for the consumer,” Hamilton said.

In its ­submission to the inquiry, the ­Commonwealth Bank of Australia said the term should be re-labelled “sales” or “product information” to improve consumers’ understanding of what they were receiving.

The Financial Services Council, which represents the wealth management arm of the big banks, said general advice should be changed to “general information”.

“We believe that general advice should be renamed to ensure that consumers have more clarity about what they’re receiving, as in some cases it is just factual information being provided from a research report or product seminar,” Ms Phillips said.

CLSA diversified financials analyst Jan van der Schalk broadly supported Murray’s recommendations for the wealth sector.

Potential saviour lines up for Pie Face

About 17 company-owned stores and two franchised stores have closed, reducing the chain to about 50 outlets.When reports emerged six months ago that the Pie Face franchise was in trouble, Stan Gordon reached out to founder Wayne Homschek.
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Mr Gordon, the chief executive of the Franchised Food Company – which has 180 franchised stores under brands such as Cold Rock Ice Creamery, Pretzel World and Nutshack – thought he could offer Mr Homschek some ­useful advice. He ran a hot pie business in South Africa almost 20 years ago and brought the concept to Australia when he emigrated in 1996. “I wanted to teach Australians about pies – I thought if it worked [in South Africa] it would work here,” Mr Gordon recalled.

“Australians knew more about pies than I did, [so] it failed miserably. I laugh about it today but at the time it wasn’t funny,” he said.

Mr Gordon reckons he knows what not to do now and is keen to give the hot pie business another red-hot go by taking over the collapsed Pie Face.

“We are a multi-brand operator. There are not many others who would be in a position to take it over,” he said.

“We have 180 stores and we understand the smaller types of franchises – the mom and pop operators who have put their life savings and homes on the line. And we understand the snack treat market.”

However, after making several approaches to Pie Face’s administrator, Jirsch Sutherland, Mr Gordon has yet to receive a response. He believes the administrator and Pie Face directors and investors are more interested in pursuing a deed of company arrangement and refinancing major creditor Macquarie Capital than finding buyers for the business.

About 17 company-owned stores and two franchised stores have closed, reducing the chain to about 50 outlets, and Pie Face’s administrators and ­management are in talks with landlords to reduce lease costs on remaining stores.

It is also looking at ways to cut costs and boost production in its Rosehill factory, including selling frozen, take-home packs through Woolworths.

Franchisees, creditors and investors at Pie Face’s first creditors’ meeting last week were told weekly ­outgoings across the group were still exceeding sales by about $150,000.

Directors are expected to submit a deed of arrangement before the second creditors’ meeting on December 30.

Creditors would need to be convinced the deed delivered a better return than liquidating the assets.

Mr Gordon believes Pie Face’s current model is unworkable but could be fixed by tweaking the product offer and repositioning the brand.

The current model pitted Pie Face franchises against independent bakeries, many of which baked hot pies, he said.

“They have the right ingredients, but they’re putting them in all the wrong places,” he said.

Pie Face was founded in Sydney in 2003 by Mr Homschek and his wife Betty Fong and it expanded rapidly, raising more than $35 million over the past five years from a string of ­high-profile investors, including retail entrepreneur Brett Blundy, ­Rothschild Australia chairman Trevor Rowe and former Austereo executive Brian Bickmore.

Angus Geddes, the founder of in­vestment newsletter and fund manager Fat Prophets, is estimated to have invested about $5 million into Pie Face for a 6 per cent stake. He said after the company’s collapse he was con­fident it could get out of voluntary administration quickly.

Banking sector reform will affect every Australian

A banker no more: Former Commonwealth Bank head David Murray conducted the government-commissioned Financial Services Inquiry. Photo: Christopher Pearce
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Treasurer Joe Hockey urges banks to co-operate with regulators

The Financial Services Inquiry is truly far reaching.

The new model former banker David Murray puts forward will affect every Australian. If you own a credit card, have a loan, a bank deposit, superannuation, an insurance policy or own shares in a bank, the tentacles will touch your financial position.

The massive overhaul of the Australian financial system is aimed to act as a bulwark to secure the system in the event of a future shock such as the global financial crisis.

It seeks to iron out many of the competitive inequities in the system that disadvantage smaller regional banks and acknowledge that the digital revolution is changing the financial landscape, ushering in new entrants that need to be accommodated within the regulatory framework

The inquiry has also exposed a structurally deficient superannuation system that is expensive for the consumer and lacks competition.

The new super system package recommended by the Murray inquiry has the potential to increase an average weekly earning-male by 25-40 per cent in retirement, according to the report’s authors. And changes recommended to credit card surcharges will see consumers pay lighter fees.

The price of bolstering the safety of the banking industry will come at a cost – particularly to the big four banks, Westpac, Commonwealth Bank National Australia Bank and ANZ – because they will need to carry a greater capital reserve buffer, one that will place it in the top ranks of their international peers.

It is a prospect the major banks have been aware of and on which they have already been mounting  a rearguard action.

It has set Murray and the major banks on a clear collision course. If implemented by the government, there is a clear suggestion that banks will pass on higher costs either by increasing interest rates to borrowers, decreasing deposit rates, or reducing dividend payments to shareholders.

Murray recommends our banks should be in the top quartile when measured by international standards but makes no explicit target. However, he suggests the major banks are in a range of 10-11.6 per cent  on a globally harmonised basis but this needs to go above at least 12.2 per cent to be in the top quartile.

The report says that if Australia experienced a shock that was in the range experienced overseas during the global financial crisis, it would be “sufficient to render Australia’s major banks insolvent in the absence of further capital raising”.

It could destroy 900,000 jobs and create large falls in the nation’s gross domestic product.

Based on international estimates, the cost to GDP of a crisis would equate to $300 billion to $2.4 trillion in Australia and further increase government debt..

The report said that while Australia’s resilience to the GFC reflected the strength of the financial service sector, many factors came into play including the government’s balance sheet and Chinese resource demand, that may not be present in the next crisis.

Murray’s view is that any banking system shortfall should not be funded by taxpayers

The risks associated with a crisis are further exacerbated by Australia’s highly concentrated banking system. “Disruption to the functioning of one major bank could be expected to impose significant costs to the economy particularly if it resulted in contagion to other Australian financial institutions.”

He said bank returns could be lower and still attractive to investors and generate sufficient return to promote economic growth. Thus Murray clearly thinks the cost on banks associated with ensuring systemic safety will be borne by their shareholders rather than their customers.