With the formal hearings of the Royal Commission now behind us, we can take a breather as we await the final report. Commissioner Kenneth Hayne is due to submit it, no later than February 1, next year.
Given the frenetic pace at which he conducted the enquiry, it seems unlikely he’ll be asking for any extra time. Who knows, it might even come in early.
After a truly brutal year, executives from some of our biggest financial institutions are still licking their wounds.
By the time they finished on the stand, some barely had any skin left. All they wanted to do was get their hands on a very stiff drink.
For them, they are now in count down mode to the Christmas break. Only when they hit the beach at Noosa, will the sunshine take away some of their pain.
For them, 2019 won’t come soon enough.
We had already heard much about the malpractices of these institutions before the commission got under way. About the dodgy practices in some of the wealth planning divisions of the major banks.
And the fraudulent activities around home loans. So-called ‘introducers’ getting tens, and sometimes hundreds of thousands of dollars, in kick-backs for referring mortgage clients.
There is little doubt, though, that the Commission brought further malfeasance to light. Charging fees to dead people for one. And systemic gouging of customers for services never rendered, another of many complaints.
One ANZ executive even had to concede they had lost count of how many times it had breached its AFSL. Youch!
So strong has the retribution been to the banks, that the pendulum has swung far the other way. Banks have almost become too scared to lend.
While dishonesty and fraud were top of the Commission’s findings, there was also something else that raised the Commission’s ire. That is, the link between these illegal practices and executive pay.
Executives directly benefitted as a result of these frauds. In other words, there was a financial benefit in looking the other way.
Wages will be at the forefront of the next election
The remuneration of executives, though, is not just something that came to the fore in the Royal Commission. It is something that has been on shareholders’ radar for much longer.
It’s not just about salaries. It’s also the low bar at which performance hurdles are set.
Even if a company barely makes par, executives can still score millions in bonuses. In some companies, salary and bonuses have run into tens of millions of dollars.
What really gets up people’s noses, though, is that all this is happening when their own pay packet won’t budge an inch. Wages have barely nudged above inflation in years.
While the pay packets of the select few seem to go ever-skywards, everyone else feels like they are falling behind.
One thing you can be sure of is that wages will be front and centre in next year’s federal election. It fits an easy narrative for both the opposition and union movement to exploit.
It’s a hard argument to refute. Why do bosses pay go up when everyone else’s doesn’t? Whatever answer their employer tries to give, you can be sure no-one is going to buy it.
Why won’t wages grow?
There are reasons why wages just won’t grow. And it all about economics.
Whether we like it or not, it all comes back to the global economy. It’s something we are a part of, whether we signed up to it, or not.
Part of that is the flow of capital. Money goes to where it can get the best return. If wages are cheaper in one country, then as we have seen, manufacturers will beat a path to its door.
Not just European and American car manufacturers have set up offshore. Even South Korea’s massive chaebol, Hyundai, has continually moved production to China, as its union back home pushes for higher wages.
And, of course, we are not just competing against wages — it’s also about technology. Even much closer to home.
Robo-advice will punch a hole in the financial advice industry. More so, than the revelations of the Royal Commission have done.
Wealth managers and banks will embrace robo-advice. Not just because it’s cheaper to do so, but because they can control the outcome. In the end, robo-advice is just another series of algorithms.
Can you really imagine robo-advice of one company steering a customer into the hands of a rival?
Plus, robo-advice and other technology will allow these institutions to cull their much more expensive human work-force.
That is why wages won’t grow. Technology and the flow of capital are too powerful. It will always chase the better return.
But that won’t be what the union movement tells you come the next election. They will place the blame squarely at the feet of greedy bosses and corporations.
Editor, Options Trader
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