AMP chair Catherine Brenner and chief counsel Brian Salter’s resignations this week had been very widely telegraphed outside the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The main discussion point was this: Why on earth did they wait so long before tapping the proverbial mat?

What’s chilling is the realisation that what AMP needs is an impartial, independent and well-resourced review of how it got into this mess, starting with charging clients for advice they never got – a situation AMP management knew of.

Of course, they tried that with lawyers Clayton Utz, only they couldn’t keep their hands off the conclusions and it was subject to 25 revisions agreed to between AMP and the lawyers.

As counsel assisting Rowena Orr put it to Commissioner Kenneth Hayne on Friday: “AMP adopted an attitude towards the regulator [ASIC] that was not forthright or honest and demonstrated an attempt to mislead.”

It’s pretty draining for the normal reader to see Australia’s best-known life insurance company accused of lying. What it must be like for its many honest employees and advisers doesn’t bear thinking about.

Stand by for AMP’s annual meeting on May 10, where protest votes and angry speeches will be the order of the day.

It’s scary to realise there’s no perfect model out there unless we entirely replace trailing commissions with fee-for-service, systematically demolish the vertically integrated model and at the same time hugely reinforce the oversight of advisory businesses and advisers that claim to be independent.

No pressure, as they say.

Mixed blessings

The royal commission has done a sensational job of using case studies to highlight the shortcomings of both the vertically integrated (thanks AMP, CBA, Westpac) and the independent models (see Sam Henderson and Terry McMaster) for financial advice.

As we look back over the last two weeks of hearings, we’re in the situation now where Hayne must be wondering where to start, never mind go, with his eventual recommendations.

Governments swallow royal commission recommendations like oysters, adopting them wholesale because to do otherwise would be political suicide.

That’s a mixed blessing for the commissioner, who knows better than anyone that he’d better get it right.

We’ve learned much about the advisory business in the last two weeks; for example, having a media profile counts for zero if you have been cheating and you get found out. Henderson is a man who said he had a master’s degree in commerce when he doesn’t, and that’s just the tip of his iceberg of sins.

Have you noticed, by the way, that having a high media profile means the media has many photographs of you looking wise and prosperous? That can come back to bite you later.

Also, when it all gets a bit much in the witness box, your blood vessels distend and the heart cuts back on blood flow to your brain, which is what happened to McMaster, of Dover Financial Advisers, late last week. He fainted, quite genuinely, then recovered enough as he was carted off to the ambulance to make it clear he was happy to be anywhere but the witness box. It might have been a better look if he had stayed down.

This was the man whose “client protection policy” at Dover turned out to be more about protecting the adviser from the client than the more traditional arrangement.

“I’ve certainly understood and regretted the use of the word protection,” McMaster told counsel assisting the commission Mark Costello, not long before he keeled over.

Dover turns out to have been about the only advisory business that declined to provide a statement on misconduct to the commission before proceedings began. Let’s be kind and assume it didn’t occur to them to check with one of the ones that did provide one.

Senior ASIC executive Louise Macaulay made it clear on Friday that with 60 people at the regulator overlooking retail advisers, she believed ASIC was under-resourced. And the commissioner is clearly unhappy that ASIC mostly waits, until organisations make their own investigations and report breaches, before acting.

He doesn’t talk a great deal, but when he does everyone listens.

“It is an unusual position to arrive at, isn’t it, that the operation of the law depends upon the way in which those governed by the law organise their own internal affairs?’’ he asked Macaulay. She agreed.

That sounds like the death knell of self-regulation, but it does pose the question: If ASIC is so under-resourced at the moment, how hard is it going to be for the regulator to be more proactive and cover more ground?

New licensing models

What if the licensing system moves from the organisation to the individual, as many people have suggested? How on earth could ASIC regulate that? And we can assume from all the evidence about their conflicted sense of duty that the Financial Planning Association and the Association of Financial Advisers won’t be regarded as serious players in the business of disciplining errant advisers.

Meanwhile, what model for the big players should the commissioner recommend? We’ve had many people demand the demolition of the vertically integrated model but that is starting to happen anyway, and will turn out to be a race between the legislators and the free market.

MLC executive Andrew Hagger made it clear earlier in the week that not only does NAB want to get out of owning financial advisory businesses, but also it’s no longer excited about being aligned with independently owned ones.

“The risk/reward equation looks different today to what it looked like in pre-FoFA days,” Hagger told the commission, and that almost certainly applies across all the big players.

So you can assume the big banks are going to sell advisory businesses as fast as they can find buyers or split them off. Witness NAB’s planned parting of the ways with Godfrey Pembroke, reported in Professional Planner on Friday. And the banks are also going to be as keen to push the independents away to arm’s length as the independents are going to be to return the compliment and widen the gap.

And that will just be the start.

*This is the first of a two-part wrap of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Tomorrow: do mates rate?

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