NAB CEO Ross McEwan (Image: AAP/Joel Carrett)

The acquisition by IOOF of NAB’s wealth management arm MLC brings to an end one of the most sordid periods in Australian corporate and political history — one in which the biggest and most important companies in Australia systematically ripped off their customers, all while politicians defended them.

Fueled by the dream of vertical integration, the idea of cross-selling bank customers financial services and clipping the ticket on the growing pool of compulsory superannuation savings, the big banks began buying up fund managers and insurance companies 20 years ago, when the Commonwealth Bank acquired Colonial.

Other big names were soon ticked off. Westpac bought BT, NAB got MLC. ANZ teamed up with ING. Smaller fund managers and insurers were swept up along the way. The deals created armies of financial planners to sell bank-owned financial products and insurance policies to bank customers, as well as a new breed of star fund managers like Chris Cuffe, Kerr Neilson and Hamish Douglass, who made millions and were feted by the business press.

Put a fork in them, the election is almost done.

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Planners were supposed to advise clients about what would best serve their financial interests. Instead, hundreds of thousands of Australians were sold products they didn’t need, or that were inferior to those available elsewhere, or that came with hidden fees and charges, all flowing back to the banks, with planners and bank staff given commissions for every client they delivered.

The financial crisis exposed the shortcoming of the model, and those of corporate regulator ASIC. The collapse of Storm Financial and other wealth managers who had encouraged clients to borrow heavily to invest in financial products deeply implicated the Commonwealth Bank, as well as other major institutions.

The then-government’s response was to institute a series of major reforms, including bans on most commissions, and require clients to regularly choose to be charged ongoing fees.

But the big four banks were, after the hospitality industry, the biggest political donors to both sides. Between 2000 and 2019, they together gave Labor branches $4.2 million in contributions that we publicly know of (the Commonwealth Bank fails to disclose many of its contributions). But they gave the Coalition $5.6 million. In the years around the 2013 election, the disparity was especially striking: the banks gave Labor just over $300,000, but the Coalition received over $730,000.

The Liberal Party were natural allies of the big banks because they shared an enemy: industry super funds, which earned higher returns than bank-owned retail super funds and charged lower fees. The Liberals were, and remain, committed to the destruction of industry super, despising the role of trade unions, which with employers jointly control industry super.

Labor’s Future of Financial Advice (FOFA) reforms were a direct threat to big bank retail super, especially the ban on commissions and a requirement for an opt-in for ongoing fees — a lucrative source of unearned revenue for planners and the banks. The Abbott government immediately pursued the repeal of FOFA after its election. Abbott also slashed funding to ASIC to further cripple the regulator.

Bank-controlled industry groups like the Financial Services Council cheered them on. And the financial services inquiry commissioned by the Abbott government unsurprisingly defended vertical integration.

In 2014, the government secured the numbers in the Senate to repeal FOFA, and the big banks’ millions in donations to the Liberals finally paid off — or so they thought. But Labor’s Sam Dastyari, in his one major achievement during a blink-and-you’ll-miss-it parliamentary career, engineered a Senate alliance to reverse the repeal.

That year also saw a major inquiry by Labor’s Mark Bishop and the Nationals’ John Williams into the comprehensive failure of ASIC to properly police the sector, focusing on the outrages perpetrated by Commonwealth Financial Planning.

The revelations of that inquiry, both of the misconduct of the Commonwealth Bank-owned wealth arm, and ASIC’s near-contempt for the bank’s victims, illustrated what happened when the big banks were allowed to have their own way.

With FOFA locked in and growing community outrage about the banks, 2015 saw the beginning of the end of the vertically integrated model. Suncorp sold off its financial planning business, NAB its life insurance business. In 2016, ANZ announced it was selling some of its financial services businesses. In 2018, the Commonwealth Bank announced it was looking to get out.

By then, of course, the Hayne royal commission was in full swing. Originally a Greens idea supported by the Nationals’ John Williams, Labor initially opposed the idea — perhaps swayed by the millions in donations from the banks. But Bill Shorten embraced the idea before the 2016 election.

With more and more Nats also supporting an inquiry, Turnbull and treasurer Scott Morrison were forced to launch one. With an unerring aim for their own foot, they included superannuation in the inquiry in the hope it would expose the industry super sector. Hayne gave industry funds a clean bill of health, and instead exposed the rorting of the retail sector.

The media’s role in the saga was mixed indeed. Adele Ferguson’s journalism, time and again, exposed the outrages of the big banks and their wealth management arms. Anthony Klan and Michael Roddan, both then at The Australian, did much to expose the failings of retail super. But the debate over FOFA was too complex for most political journalists, and it was played out in the business pages.

The Financial Review, which shares the Liberals’ pathological hatred of industry super, campaigned furiously against FOFA, backing financial planners and the big banks over ordinary investors.

The cost, after all this time, is remarkable. The big banks and AMP have, to June 30, paid out $1.05 billion in compensation to 940,000 victims of their misconduct (NAB is in the lead, with $368 million). Hundreds of millions more will continue to be paid out, with vast sums set aside to compensate Australians for the crimes and rip-offs the banks committed.

Thousands of victims of the banks and of crooked financial planners have had their lives ruined and their savings lost. Many died before ever seeing a cent of compensation.

There was nothing accidental about any of this. There were no “few bad apples”. This was how the system of vertically integrated financial services, operated by staff and financial planners on commission, was supposed to work. And the Liberals, backed by key sections of the business lobby and the AFR, ran a protection racket for it until the stench became so bad even they had to stop defending the banks.

You’ll see no apology from the Liberals, or the succession of ministers responsible for the sector or the AFR, or the Financial Services Council, or the apologists for the whole sorry system, for the misery inflicted on nearly 1 million Australians. But at least the 20 years of vertically integrated rip-offs are over.


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Peter Fray
Peter Fray
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