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Will Murray Inquiry better protect consumers?

Everyday investors might be in line for better protection, and the Government could be in for a surprise, when the final report of the Financial System Inquiry is delivered in November, its chairman has hinted.

After the Government wound back controls on financial advisors in July, Inquiry chair David Murray last week suggested that his final report could push for greater consumer protections against shoddy financial advice.

Mr Murray said he was mindful of the suffering caused by the advice of dubious operators.

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“[W]hat’s been very clear to us, particularly in the public forums we’ve held, is that the degree of suffering from people who do lose substantially is very significant, so from that perspective we are trying to work out what should be the regulatory response,” Mr Murray said.

“That’s why we’re looking at the regulatory arrangements, the enforcement arrangements, the penalty arrangements, much more closely,” he said.

Mr Murray, himself a former CEO of the Commonwealth Bank, said issues like air safety, pharmaceuticals and medical services were taken very seriously, and “while it is simplistic to say people don’t die from their financial services,” the damage can still be profound.

Ian Narev

Commonwealth Bank CEO Ian Narev. Photo: AAP

Macquarie, CBA scandal top of mind

Two weeks ago, Macquarie Bank was ordered to write to 160,000 customers who may have received bad financial advice from the bank’s private wealth division and may be eligible for compensation.

ASIC was also reportedly “concerned” Macquarie Private Wealth had relabelled retail clients as “sophisticated” or “wholesale” investors to allow them to make riskier trades.

The corporate watchdog released a statement saying it was looking to clarify the definitions of wholesale and sophisticated investors.

This followed revelations that 400,000 past and current Commonwealth Bank customers may have received fraudulent advice. The scandal led to current CEO Ian Narev apologising and announcing a compensation scheme.

The apology capped a scandal which involved the bank’s financial planning division between 2006 and 2010 before an employee reported his concerns to ASIC.

In July, the Senate passed the Government’s new FOFA regulations, which the Opposition and not-for-profit groups described as a backward step for consumer protection.

‘Expect a reversal’

Industry Super Australia deputy CEO Robbie Campo told The New Daily that a reversal of the “dilution” of FOFA is “inevitable”, and that the final Murray report may “go well beyond” what even the previous Labor government sought to legislate.

“I think it is inevitable at some stage in the future that there will be a complete prohibition on any form of conflicted remuneration for financial advice,” Ms Campo said.

“It is not surprising that the Murray Inquiry is focused on the structural conflicts in financial advice and possible solutions which could go well beyond the original, let alone diluted, FOFA laws,” she said.

Ms Campo hoped to see a complete ban on commissions in the upcoming Murray report.

“With the laws as they currently stand, most commissions have been banned, but there are other sales commissions and remunerations that have been re-permitted. Any form of conflicted remuneration should be banned,” she said.

Under the FOFA changes, up to 10 per cent of the annual income of some advisers can be linked to sales targets. Commissions are technically banned, but narrowly defined.

The inquiry is due to report to Treasurer Joe Hockey. The inquiry’s interim report, released in July, already put advisor competence in its sights.

newdaily_250814_financial_adviceSurprise in store?

By appointing Mr Murray, the Abbott Government may have broken an age-old political rule – never be surprised. Former Prime Minister and Treasurer John Howard repeated that maxim in a prerecorded interview aired on stage before Mr Murray took the podium.

“There’s no good setting up an inquiry that invites people to recommend something that you’re not going to agree with. If people are likely to recommend that, then you don’t have an inquiry in the first place,” Mr Howard said.

As a former bank CEO and boss of the Future Fund, Mr Murray seemed an unlikely source of embarrassment for the Government.

It was during his tenure as Commonwealth Bank CEO that financial planners were employed directly by the bank, which paved the way for a multi-million-dollar scandal, involving rogue planners investing clients’ money without their consent, that served as the backdrop for much of the FOFA debate.

But far from being a ‘Yes Man’, Mr Murray’s comments may be a portent of tougher recommendations for big banks like CBA, which employ the bulk of Australia’s financial planners.

The Australian Bankers’ Association declined to comment, and Shadow Treasurer Chris Bowen and the Australian Greens did not respond in time for publication.

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