16 July 2014

The future of financial advice

Maurice Newman is supposedly Chairman of the Prime Minister's Business Advisory Committee. When he aired his opinions on climate change, which ran the full gamut from the half-baked to the half-witted, people marvelled that such an ignorant man should be so trusted an advisor to the country's government.

Since then, you would have expected Newman to have been very busy. Keep in mind that the first term of any government is when its legacy will be most firmly set in place. Yet, Newman had no role in the stunted compromise over Sydney's second airport at Badgery's Creek. When business confidence crashed and the Business Council of Australia joined in trashing the budget, Newman was not having gentle chats with the chaps in Collins Street and Martin Place to persuade them of its merits. Future eructations from Newman should be cast in the dim light of this inaction.

Newman was a stockbroker. You cannot buy or sell shares and other financial products unless you go through a stockbroker: it's a legally-protected retailing job. Sometimes they offer financial advice, but mostly they don't need to - whether clients make money or lose it, the stockbroker does well either way. The private-sector nature of the job, and the fact that you can make out like a bandit without anything like hard work, attracts libertarians and leads them to overlook the essential regulatory underpinnings. Even the most dogmatic libertarian will die in a ditch for "brokerage fees" that add no productive value and cost Australians billions of dollars each year, and will blanch at the very idea of shares traded directly from seller to buyer like Bitcoins or organic vegetables.

Let us leave aside Newman's embarrassing foray into climate science (or even the business opportunities arising from it: no solar panel installer ever bought him lunch), and his ineffectual chairmanship of the ABC. If Newman was going to bring his business and political clout to bear on anything, surely it would be on the amendments and regulations over those who give financial advice to people and sell them financial products, or even the system that generates such products: sadly, no.

Decisions on how financial products are to be sold, and on whom the regulatory burden should fall, have been the subject of considerable debate. The most cogent debates seem to be found here rather than on Hansard, and if there's anywhere less enlightening than parliamentary debate on this issue it must be in the traditional media.

Traditional media outlets used to have a number of journalists who specialised in business matters, who seemed to subsist on sandwiches from corporate AGMs and who could get to the nub of complex issues quickly and engagingly. They tended to be the first ones out the door once traditional media began downsizing, and have not been replaced. Explaining the FoFA debates has been left to Australia's worst journalists, the press gallery, who can only ever explain developments as 'argy-bargy'.

Most traditional media outlets have more than one employee in the press gallery. Nobody in the press gallery follows any one issue for an extended period, as they all move as a herd being equally unenlightening on any issue. This is one of the better press gallery articles on the subject, but it is still presented as win/loss for the government and a series of unqualified quotes rather than what this might mean for consumers long after financial advice regulation is 'off the agenda'.

The traditional media has noted the 'argy-bargy' between Cormann and Palmer over the bill before the Senate. The traditional media has noted the report from David Murray on the regulation of the financial system, including his comments on financial advisor fees and other matters that might cast more light than heat over the FoFA debate. The traditional media has not, however, twigged to the idea that Murray's findings are not apparently shaping the way financial advice is to be regulated into the future. It shows no sign of considering that such a dislocation (along with doubts about the passage of the budget, and the fiscal strategy of the government as a whole) might indicate a lack of joined-up policy planning on the part of the government.

This isn't to advocate for (or against) Murray's findings, nor indeed for the legislation of the previous government which this one is seeking to overturn. It is to question why you'd have an inquiry into regulations that was so utterly disconnected from your regulatory agenda.

Tabloid television shows hire convicted thieves to break into houses and cars to run stories about domestic security. Organisations with large IT systems hire white-hat hackers to probe for electronic security vulnerabilities. Similarly, traditional media should hire some old scammers from Qintex, Westpoint or Storm Financial and present them with the amendments from Cormann and Palmer, and then say to them: looking at these proposed regulations, if you were out to rip off people with more money than sense today, which of these proposals makes it easier for you?

The person chairing the finance system inquiry should have been Don Nguyen, identifying his least favourite options, doing it as a community service obligation rather than for whatever Murray was paid.

Maurice Newman was of no practical assistance in the process of regulating the financial advice industry, one he knows intimately. He might have smoothed things over with Clive Palmer, businessman to businessman, but no. Clearly, being Chairman of the Prime Minister's Business Advisory Committee is a position of no practical political or policy effect, like being Miss Australia or Minister for Health.

The failure of the government in both a policy and a parliamentary sense, and the failure of the traditional media to explain what's going on at any level, leaves consumers exposed and ill-equipped to engage with the debate.

It is standard practice for a government in trouble to create a diversion, and without Newman to do it the task has fallen to Kevin Donnelly.

When the budget was in trouble, Donnelly floated introducing teaching Latin to schools. There is no budget for it, no real advocacy, just a bit of anecdotage that achieved the desired result of attracting press gallery attention away from the train-crash of fiscal policy. The move was designed to appeal to the conservative base, but it didn't work because the budget jangled the hip-pocket nerve too hard.

Before the last election, in what was probably the closest they came to actual policy development, the Coalition proposed an increase in educational exchange between countries in the Asia-Pacific. The idea of increased learning of Asian languages by Australian students is one of those ideas that enjoys great support but fails for lack of a champion. Kevin Rudd proposed it as a Queensland public servant a quarter-century ago, and was still wittering fruitlessly about it after losing the last election. Kevin Donnelly hasn't engaged with the idea at all, but he may yet do so in a future look-over-there moment.

Donnelly's latest maneuver is to talk about corporal punishment. It may appeal to the conservative base, but the threat posed to retirement savings may again displace the effectiveness of culture-war gambits such as these. Journalists should be awake to deliberate feints and distractions like this, but not so for the easily impressed Matthew 'Mark' Knott:
Kevin Donnelly, co-chair of the national curriculum review and a widely published commentator on educational issues ...
Donnelly is not widely but narrowly published, in the Murdoch press; and if you look at the placement of his columns on the page you can see his editors know he is not one of those contributors who attracts readers.
Dr Donnelly continued: "I grew up in Broadmeadows, a housing commission estate in Melbourne, and we had a Scottish phys-ed teacher.

"Whenever there were any discipline problems he would actually take the boy behind the shed and say, 'We can either talk about this or you can throw the first punch'.

"That teacher would probably lose his job now but it was very effective. He only had to do it once and the kids were pretty well behaved for the rest of the year."
Australians are one of the most obese people in the world, an indictment on the effectiveness of phys-ed teachers of whatever background. It is the mark of a mediocre teacher whose ambition and capability extends no further than sullen compliance.

What surprised me about going behind the school sheds was that they did not run into any smokers - Donnelly was hired by tobacco companies to present smoking to school students as a valid lifestyle choice, making a mockery of his other witterings against moral relativism.

The Minister for Education, Chris Pyne, believes he is helping his colleagues by having Donnelly run interference. No journalist will link Donnelly to Pyne in this fashion. No journalist will look at Pyne cutting school funding, and Donnelly cluttering the curriculum with irrelevances, and wonder whether any education minister has so failed his brief as Pyne failed his.

Pyne was responsible for the idea that Peter Costello might challenge for the Liberal leadership, a non-story that sustained the careers of many press gallery veterans. Pyne has been good to the press gallery, and they to him, but whether either is any good at their allotted roles is a question that no longer admits positive possibilities.

In all of his forays into investigative journalism (why meet Deep Throat in an underground carpark at midnight when you can get your scoopy EXCLUSIVEs by transcribing 2UE?), Knott never considered the possibility that he might be in hot pursuit of a non-story, that he might be nothing more than a willing dupe while real actual stories went begging elsewhere, or even that being a dupe is a bad thing. Neither did those who allocate his time and efforts. Note Donnelly's gutless equivocations in Knott's piece, note that Knott does not and cannot call him on them, note the fact that Donnelly's and Wilshire's report is due in a few weeks; and wonder whether it will be worth a pinch of crap, even as a distraction from some emerging crisis for this stumblebum government. A crisis that real journalists should be onto right now.

With the exception of Laura Tingle, none of the Fairfax contingent in the press gallery are worth their own weight in dog food. Their ability to tell you anything meaningful about how we are governed (including the regulation of financial advice services) is non-existent.

We have a government and a media that can't describe how our financial advice system is regulated, and can't suggest how it might be regulated better. We have a media that can't even describe either the status quo or the proposals (and I include social media here - like a 21st century Dionysius I search for the blog that can enlighten in clear strong prose what is actually going on).

Financial advice has a future - until the next catastrophic failure. Maybe then a journalist will then have the temerity to ask Cormann or Palmer about their role in such a failure, whereupon they will simply say "I reject that". The journalist will simply quote them and move on, wondering why people regard traditional media as even less relevant than politicians.


  1. In another of those life imitating art moments, Maurice Newman reminds me of Sir Desmond Glazebrook of Yes Prime Mnister fame. Who knows, he may end up Governor of the Reserve Bank!

    From "Yes, Prime Minister: A Conflict of Interest (#2.4)" (1987)
    [discussing a financial scandal]
    Sir Desmond Glazebrook: They've broken the rules.
    Sir Humphrey: What, you mean the insider trading regulations?
    Sir Desmond Glazebrook: No.
    Sir Humphrey: Oh. Well, that's one relief.
    Sir Desmond Glazebrook: I mean of course they've broken those, but they've broken the basic, the basic rule of the City.
    Sir Humphrey: I didn't know there were any.
    Sir Desmond Glazebrook: Just the one. If you're incompetent you have to be honest, and if you're crooked you have to be clever. See, if you're honest, then when you make a pig's breakfast of things the chaps rally round and help you out.
    Sir Humphrey: If you're crooked?
    Sir Desmond Glazebrook: Well, if you're making good profits for them, chaps don't start asking questions; they're not stupid. Well, not that stupid.

    1. Of course it helps a bit when Rupert can can simply declare that Toady's honest - even though it condemns him to incompetency. I also note that all of the Press Gang (save Tingle) are 'chaps' in the YPM sense. Thatcher's Spawn have much to answer for.

    2. Thatcher, of course.

  2. You mention nobody in the blogsphere breaking it down, do you read macro business?

  3. As usual I have enjoyed your fluid argument. I agree with the main thrust and lament the disappearance of specialist journalism and its replacement with self-serving commentary and an absorption with attention seeking triviality.

    I do not agree, however, that Pyne's yearning for Latin (I approve of that actually) and Donnelly's desire for the cane comeback are put out as diversionary tactics.

    The 'Latin' idea is an interesting topic for discussion.

    The corporal punishment matter seems to be an indication of a fundamentalist mind set. I cannot see how its lampooning would benefit the govt. On the contrary I think it would serve to harden opinions that this govt is a hard-hearted punisher.

    1. Amusing that Donnelly's PE teacher example no longer supports corporal punishment. These Conservatives are whacko in word and deed!

    2. Lachlan Ridge17/7/14 11:19 am

      There's votes in being hard hearted. A lot of votes.

    3. Well you would know better than I would Lachlan. Except don't you think people will accept having nasty tasting medicine thrust down their throats if they are convinced of a need for it.

      It appears to me, at this point anyway, that voters are suspicious of moves to make radical changes to our way of life.

      That expert wind-sniffer John Howard used to say time and time again that Australians would not accept a radical govt. I think he is correct.

    4. Lachlan...

      By wealthy, crusty old men or young disillusioned yuppies in the lib/lab clique, rednecks

      That's a very narrow minded group of people

    5. Lachlan Ridge20/7/14 1:20 am

      ...and there's tens of thousands of them in marginal seats. They vote for financial self interest, and actually enjoy the suffering of others; as the large volume of jokes about refugees, indigenous Australians and women will attest.

      And the major parties know it, and pander to it.

    6. Barry Kosky said recently that the right wing German parties are adopting our Hardline policies into their own political system.

      That's pretty disgusting

      Fluffy fascism right there!

  4. Even the youn guns at the I.p.a think it's a crazy idea.

    Saw the Simon guy on a.b.c breakfast this morning even though he was a speaker at their organisation.

    extreme hypocricy with these young liberals.

    Just wanted to know what you thought of the new senators proposal to horse trade with gays getting married in his statement to tolerate them?

    Seems extreme to me!

  5. Andrew – Taking your theme of useless journalism a step further, a few journalistic light bulbs have begun to flicker on twitter at the prospect of some jail time for reporting on leaks that Abbott says “endangers national security.” Do you think one of them had the intelligence to ask him to provide even one example of a story where this has occurred? Downer bugging the East Timorese’s so that he could get a consulting role at Woodside…hmm nope that’s corporate espionage. Indonesian President phone tapping, well considering how politicians keep telling us that our relationship with our “friends” in the north is so strong that such incidents have only minor effect and 6 months on, there has been no evidence of our national security being in danger, I think this has as much to do with endangering national security as a driver running into an embassy fence. Wikileaks? Well considering the US can’t point to a single instance where their national security has been put at risk, so I very much doubt that ASIO’s beef doesn’t extend much beyond some light embarrassment and a few bruised egos.

    No doubt we will hear some huffing and puffing from the Labor Left but essentially it will get their support as they sit and dream of the day that they can exact revenge on some Ltd News hack. Hopefully Gemma Jones. I’m sure Andrew Bolt is feverously tapping away after viewing various irrelevant Google searches as he defends free speech and freedom of the press. And the day when someone actually goes to jail, we will have to endure ABC News 24 as it works itself into an indigent rage as to why the great unwash doesn’t share it’s enthusiasm on wanting to contemplate the media’s belly button fluff.

    So at the end of the day, if some of those muppets get to bend over for the soap in the Long Bay communal then they can all wallow in what they have sown.

  6. Hi Andrew,

    Sorry, this is off topic but it's Friday today and the headlines are going to be dominated by the tragedy of the Malyasian Airways flight shot down over the Ukraine.

    I predict the government will take the opportunity to dump as much bad policy and news as possible hoping the press are preoccupied elsewhere.

    It'll probably work too.


  7. Very disappointed with our p.m's statement that was too political with little regard to the Aids Conference and it's participants.

    Mr Obama's thoughtful and respectful response was measured and balanced.

    It seems that our p.m can't be a great diplomat.


    Condolences to all those beautiful minds whose expertise and knowledge has been lost.
    May their work continue in another generation.

  8. I agree Abbott is about to get some breathing space from the general public loathing courtesy of the Ukrainian debacle, we're about to see Tony in his (domestic) wannabe statesman mode and the Murdoch press will come up load of bollocks like Tony is 'standing firm' on Russia etc, to desperately try and give Abbott some attack free space.