Royal commission should stick to bank scrutiny

I suppose I should be grateful. When the Turnbull government announced a royal commission into banks and financial services last year, it explicitly excluded SMSFs. It seemed our superannuation sector was out of the woods.

But based on the history of royal commissions (think the Costigan royal commission into the activities of the Federated Ship Painters and Dockers Union in the 1980s), I’m reluctant to put the champagne on ice. These inquiries have a (nasty) habit of going in directions that no one anticipates – and that’s when the government of the day has initiated the process. In this instance, the last thing the government wanted was an inquiry, so it doesn’t even have control of the agenda from the outset.

In fact, the more I read the terms of reference, the more concerned I am. Unless I have been living on Mars, I believed the entire impetus for this inquiry related to the banks, particularly the alleged misconduct of their wealth management and insurance arms, as well as inappropriate lending practices. This has been the media focus, fuelled by consumer angst over the banks’ practices in these areas. Consumer complaints ranged from overcharging to poor advice to creating unauthorised investment accounts. An ASIC investigation found the banks had charged customers $178 million in financial advice they never got.

As these complaints emerged, first via the media and then parliamentary inquiries and hearings, the banks – and it involves all the big four – grudgingly conceded any culpability. Just as importantly, senior executives who oversaw these regimes have largely escaped sanction.

On the insurance front, it was alleged Commonwealth Bank of Australia’s (CBA) CommInsure was using outdated medical definitions to delay or deny payments to policyholders and medical assessors were being pressured to reject claims. Again, no one at CBA was asked to fall on their sword.

All in all, it’s estimated the big four have had to dip into their own pockets to the tune of more than $1 billion in fines and payments to their own customers since the global financial crisis.

Despite all this evidence, the government staunchly resisted a royal commission. It was only when the banks realised the game was up – when government backbenchers started calling for an inquiry – and they wrote to the Prime Minister making the same request, did cabinet formally acquiesce. Having done so, the government decided to broaden the scope of the inquiry to include superannuation and financial services, despite there being no discernible public demand for them to be included. Sure, the financial services sector needs to be scrutinised by this inquiry – the banks’ financial services operations.

As for superannuation, well, it seems to me that this sector has been subject to two major inquiries – Cooper in 2010 and Murray in 2014. Now there is a 12-month Productivity Commission inquiry into the competitiveness and efficiency of the super system, with the final report due in the middle of next year.

The Cooper and Murray inquires were of the root-and-branch variety; so too is the Productivity Commission. It seems hard to believe that just several years after Murray, the final report was handed down in late 2014, and while the Productivity Commission inquiry is still underway, that a royal commission is going to unearth anything startling in superannuation.

Certainly, it’s not what the public, nor the government backbenchers who forced the inquiry, want. For them, it’s all about the banks. So the government’s decision to include superannuation and financial services can very easily be seen as muddying the waters. As the government’s own media release unambiguously states, moves have been made to improve professional standards for financial advisers, it’s establishing a one-stop shop for all financial complaints and is giving ASIC additional powers.

Yet I fear the superannuation industry could become a prime focus of this inquiry. And if that happens, SMSFs are almost certain to become part of proceedings.

What’s been extremely gratifying for those of us in the SMSF sector is the glowing reviews it received from Cooper and Murray. Some quibbles, no doubt, but nothing structural, and this despite the best efforts of our many critics.

So, it will be a (sad) irony if an inquiry prompted by poor banking behaviour results in any negative policy outcomes for SMSFs. If it does so, I suspect the sector’s collective outcry prompted by the 2016 budget changes will pale into insignificance compared with the political backlash such a consequence would provoke.

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