Knowledge Source

Your freedom to create wealth...

You are here: Home / Archives for Finance

They just started giving money away… Whaaat?

by Leave a Comment

The 20th anniversary of the zaniest moment in economics shows us just how far we haven’t come.

This month marks the 20th anniversary of one of the strangest events in economic history.

Maybe you never heard of it. It was 1999. The internet was still getting of the ground. Facebook was still just a pimple on Mark Zuckerberg’s teenage mind.

But one small pacific nation decided to do something ‘radical’. They’d be having a bit of a rough trot, and the economy was in the doldrums.

So their wacky leaders came up with something zany – FREE MONEY.

Yep, they just made money free. They were giving it away.

Not only that, when people weren’t taking it off their hands fast enough, they started buying stuff off people, to put even more money in their pockets.

It was crazy-town. La-la-ville. Why-don’t-you-have-your-pants-on-palace.

Every economist in the world was predicting fire and brimstone.

And what happened?

Wel… not all that much, actually.

Nothing really happened. Inflation never materialised, growth never happened, and the economy barely changed stride.

And that’s when we entered the twilight zone. It rewrote the economic rule book.

And what this little pacific nation did became a template for America in the GFC, Europe in the 2010 EuroFunk Contest, and Australia in 2020.

(Did he just say that? Oh no he didn’t.)

This radical and crazy policy became the economic orthodoxy. It became the new normal.

I’m guessing you’ve already tweaked that this ‘small pacific nation’ is actually Japan – still one of the most powerful economies in the world, though less so than in 1999.

And what I’m talking about is ZIRP – the zero interest rate policy, and quantitative easing – buying financial assets off the financial sector.

Ok, so it’s not exactly dropping money out of helicopters on ordinary people – the money still had to be funnelled through the financial system.

But if the interest rate is the price of money, then ZIRP really is just free money if you are close enough to ground zero – like if you happen to own an international bank or something. (Those guys need a break.)

But whatever the case, it certainly was radical. Minutes show that board member Yasuo Gotoh told his fellow board members that it felt as if they were “stepping into a fairy tale like Alice in Wonderland.”

They didn’t know how things would turn out. But they didn’t feel like that had a choice.

So they swallowed the pill and jumped.

And this is one of the key lessons for me. Policy makers don’t really know what they’re doing. They pretend that they do, but ask most economists how the economy really works, and they’ll tell you it’s more voodoo than physics.

And again, today, we stand on a bold frontier, where no one really has any idea how the economy works or how we should manage it.

Truth is, there is no ‘managing’ an economy, no more than there is managing a cyclone. We can tinker at the edges, but by and large it is out of our control.

The other point is that our policy-makers’ go-to solution is any crisis is always to “throw money at it.” That’s what Japan did. It’s what the US and Europe did. And it’s what we’ll do too, when our time comes… and it will.

There’s a lot of money to be made if you can get in the way of it.

… I mean, like I did. All that money after the GFC had to wash up somewhere, and a good chunk of it washed up in Australian real estate.

But yeah, 20 years on and nothing has changed. We don’t know how the economy works. We only have a few tools at our disposal, and most of them involve throwing money at the problem.

I know I’m asking you to take a red pill here. I’m asking you to leave behind the comfortable illusion that someone somewhere knows what the hell is going on.

But bite it.

Once you wake up to this reality, you start to see opportunities everywhere.

Is the credit crunch already over?

by

The data says that APRA’s restrictions have done their job. Time to let the market run free again.

It’s looking to me like the credit crunch might be about to ease up.

Let’s remember how we got here. Right now, the national property market is in the midst of an orderly and mild consolidation.

And consolidations are expected. The property market moves in cycles, up and down.

Most times that’s driven by dynamics in the cycle itself. Left to it’s own devices, the property market, just like the broader economy, will run hot, then cool and then run hot again.

But that’s the thing. The property market wasn’t left to its own devices. Since 2016, APRA has been getting involved, creating limits, particularly on investor lending. It started with making sure lending to investors wasn’t growing too quickly, and then became about cutting back the pace of Interest Only (IO) lending.

This clamp down on IO lending was across the market, but was particularly focused on investors.

Predictably, as the credit taps were squeezed, price growth began to stall, and over the past year or so, prices actually started to come-off, little by little.

And that’s where we are today.

So obviously if we’re interested in finding out when the market is going to start growing again, then the first question is really, ‘when will APRA back off?’

This is a little hard to predict. One of the things that came out of the Royal Commission was that APRA – who is responsible for regulating the banks – seems to have been a bit asleep at the wheel.

Given the huge list of crimes, misdemeanours and affronts to human decency that emerged from the Royal Commission, you do really have to wonder what APRA were doing.

APRA has been made to look a little silly. But what worries me now is that they might over-compensate – try to play the tough wild west sheriff. And that might mean that conditions remain tougher for longer than they need to.

And the truth of it is that right now, I’m seeing a case for letting up on the restrictions.

Take a look at this chart here from the RBA. It shows what has happened to IO lending since the restrictions came in in 2016.

The orange lines – new lending – is the one to be watching here. As you can see, IO lending pretty much fell off a cliff when the restrictions came in, particularly to investors in the bottom panel there.

But what you see here is the banks very quickly bringing themselves into line.

And after the initial adjustment, things just sort of levelled out – the share of new lending has remained fairly constant in recent months.

If it remains constant, the share of outstanding lending – the blue line – will keep trending lower, and until it re-joins the orange line.

And the structural change in the market that APRA was looking to create, will be complete.

Mission accomplished.

The thing I would note is that once this transition has been made, then the normal cyclical dynamics should start to reassert themselves.

That is, even if the share of new lending remains at around 30%, after a year, that will be the new reality we’re working with – so our annual growth rates (which compare this month with the same month 12 months ago), there won’t be any impact left in there at all.

And so that should mean that we should see price growth should realign with the cyclical trend.

It is possible that these restrictions have caused the cycle to turn. There’s a good chance of that. So I don’t think we’ll see positive growth numbers this year or in the first half of next, but after that, I’d be looking for things to start moving again.

But I’d also be saying to APRA, since you’ve caused the cycle to turn, and you have done what you set out to do with IO lending, maybe it’s time to cut investors some slack.

We certainly don’t need any more restrictions. We don’t need no sheriff out there shooting from the hip.

Here’s hoping cool heads will prevail.

I freaked out, then I saw this!!!

by

Could the Turkish crisis derail the whole global economy? This one chart says no.

Flying back in to Greece, I’m thinking, “Great. Wouldn’t you know it. The wheels are coming off in Turkey, the whole region is about to go up in flames, all before I’ve even had my first glass of ouzo.”

If you failed geography, Turkey and Greece are neighbours. And Turkey is going down in a flaming ball of debt and bad life choices.

The world is panicking about it. That’s the thing about the global economy these days. It’s all inter-connected. It’s like a giant Jenga set. Some pieces are more important than others, but you never know which one is going to bring the whole tower tumbling down on top of you.

So could it be Turkey?

I was plugging in to the global sense of panic. I was losing sleep. But then I found one chart that put everything back in perspective.

But let’s back up a bit first.

In case you missed it, Turkey’s currency, the Lira, is going to crap. It’s dropped off a cliff and is now down a gut-wrenching 45% since the start of the year.

To put that in perspective, the Argentinian Peso – that perma-cluster-fuk of a currency is only down 38%, so things are bad.

Now, a collapsing currency isn’t necessarily bad news. It makes your exports cheaper and when the Aussie dollar falls, we actually get an economic boost most of the time.

The exception though is when you’ve borrowed lots of money and it’s denominated in other currencies.

So imagine I owed someone US$100. Right now that means I owe them about AUD$130. But then let’s say the Aussie dollar falls off a cliff, down to about US50c.

I still owe them US$100, but suddenly that’s now worth AUD$200. So my debts have ballooned, even though nothing has changed except the exchange rate.

And this is what is happening in Turkey.

This chart here is a little hard to make out, but it shows foreign-currency denominated debt as a percent of GDP. Turkey is streaks ahead at around 70% of GDP. Ouch.

What’s worse, they don’t have much foreign currency reserves to tide them over or prop up the currency. It’s worse than in Argentina.

On top of all that, you’ve then got a political situation that doesn’t inspire much confidence. President Recep Erdogan reckons it’s all a ‘foreign plot’ to destabilise Turkey. There may be some truth to it, since it was Trump’s tariffs that sparked the whole mess for Turkey. But still, it doesn’t sound like a politician ready to take responsibility for the mess he’s in.

(I know! How unusual.)

And he does have to front up to some of the blame. His economic agenda has been to pump heaps of money into real estate development, mostly funded by off-shore borrowing. He has also eroded the integrity of Turkey’s economic institutions. After the last election, he appointed his son-in-law as the head of the finance ministry, and took personal responsibility for appointing the central bank’s governing council.

So Turkey is in a mess and nobody thinks they can get out of it.

What a disaster!

And so as Turkey goes over a cliff, everyone is wondering where the next domino to fall will be. Italy, Spain, Germany, Europe???

This could be the ruin of the global economy.

I was certainly working myself in to a state over it. I could barely get through my second plate of prawns.

But then I saw this chart.

This tracks foreign bank exposure to Turkish debt.

So the story here is that it’s Spanish banks that are going to bare the brunt of it. Most other banks are fine.

Spain is alarming. That charts saying that 25% of Spanish bank capital is exposed to Turkey, which does seem staggering.

But then France and Italy have little more than 5%, and when you get to the US, it’s sweet FA.

So most nations can roll with it without major dramas.

Spain however, does seem to be in trouble.

But I’m also relaxed about that too. Spain has been in trouble for a while. There’s not going to be any surprises there. All of Spain’s creditors knew they were taking on risk, and so should (I hope!) have been planning accordingly.

So the worse case scenario is that Turkey goes up in flames, Spain goes into recession, and the rest of the world muddles on.

The best case scenario is that Turkey somehow fudges its way through.

And the most likely scenario is somewhere in between.

So, I think we can all breathe a little easier.

Maybe even order another side of prawns.

Credit taps open as bank gravy train resumes service

by

The dodgiest of dodgy banks is writing its own rules… but property investors might be better off.

Ok, this sure looks dodgy. And to be honest, I don’t even know what story the banks are telling to make it look legit.

I don’t even think they bother anymore.

Ok, so remember in 2014 APRA came in and said that it wanted the banks to slow down lending to property investors. They put in a cap of 10% pa. That was as fast as they wanted investor lending to grow.

And the banks all towed the line, and it was the start of a range of credit tightening measures, most of which are still intact and have given us some of the tightest credit conditions since the GFC.

That was yesterday. Today, we’re waking up to a looser credit environment, as APRA starts giving banks relief from the cap on an ad hoc basis.

From Banking Day:

The volume gains made by non-ADI lenders in the investment mortgage market could come under severe pressure in the next few months as APRA begins to loosen the prudential constraints on lending to investment borrowers.

Banking Day can confirm that HSBC Australia, Macquarie and People’s Choice Credit Union are among the first ADIs to secure relief from the cap on investment lending introduced by the regulator four years ago.

In April, APRA signalled its intention to remove the restriction on a case-by-case basis, with licensed ADIs required to demonstrate that their serviceability tests and assessment criteria met new standards set incrementally by the regulator over the last three years.

Since 2014 APRA has required all ADIs to keep monthly growth in investment lending below ten per cent.

Banking Day understands that none of the four major banks have sought relief from the cap amid concerns that their lending practices were not likely to meet responsible lending requirements.

So that’s good news for investors. It has been tougher to get loans across the line lately. A little relaxation is a welcome thing.

But it’s also kind of strange, isn’t it? Why are they giving individual banks ad hoc relief? Do they care where the money is coming from? Shouldn’t they be worried about the ‘system’ overall?

I mean, that’s their mandate, right?

So it’s odd that they’re not relaxing the speed limit across the board.

But it gets dodgier. Take a look at that list that’s getting relief: HSBC Australia, Macquarie and People’s Choice Credit Union.

Now take a look at investor mortgage credit growth in our largest lending institutions:

Yep, that grey line is MCG – Macquarie bank – busting through the lending cap with gay abandon

… in June.

Just to be clear, let me lay out the timing again. Macquarie banks busts through the lending cap in June, to effectively be clocked doing two and half times the speed limit.

APRA responds, not by slapping Macquarie on the wrists, but by granting them an ad hoc exemption to the rules… in August.

(Seriously. I’m not making this up.)

Macquarie is in a class of its own.

Remember the GFC, when the government announced a deposit guarantee to protect customers of the big four… and Macquarie?

Macquarie had a tiny depositer base at the time. It was still effectively an investment bank, and yet it secured a deposit guarantee and a massive free kick from the government.

And here we are ten years later, with Macquarie effectively setting its own speed limits.

While a Royal Commission into dodgy banks is actually still sitting!!!

Yup. It’s like they’re not even trying anymore.

Which property segment is booming?

by

Headline numbers are hiding a big secret. Some markets are booming.

I’m going to show you what segments are actually booming in Australia right now, but first I’m going to show you a scary picture.

This is every property price decline in modern Australian history:

Whoo-oooh.

Ok, let’s pull a few things out of this. The first is that declines are common. We’ve had seven in the past 30 years – so like one every four years or so.

The property market moves in cycles. I think a lot of investors might not be aware of this – they might never have lived through a serious turn in the cycle before.

And so Sydney starts hitting the brakes and they start wetting themselves. At the risk of sounding like a grizzled old investor, get over it. It’s what markets do.

If you can’t tough it out for a soft-patch that might last a year or two, this game isn’t for you.

(Not that I know what game is. Bond trading?)

Anyway, the other point is have a look at where the current cycle sits in historical perspective.

On this chart, the peaks of each cycle have been lined up, so you can track each one from its peak.

And what you can see is that the current cycle – the red line – is actually the tamest cyclical downturn in history.

Let me say that again unless pants-wetters are still reading my blog. This is the tamest correction in history.

It’s still early days, sure, but let’s just remember that. Nothing to flip your lid over here.

But here’s what I actually wanted to share with you. This is the current property market broken up into segments. The top 25% most expensive houses. The middle 50% and the bottom 25%.

So look at what’s happening here. The top end of town – the top 25% – is falling, coming off some pretty heady peaks.

However the middle 50% – the majority of the market – is still growing, although it does look like the pace of growth is slowing.

And then there’s the bottom 25% of the market, which is going gang-busters.

And so only the top 25% of houses are falling, but they’re falling far enough fast enough that they’re able to pull down the aggregate numbers.

And enough to put a bit of doom and gloom on the paper headlines.

And so what’s the real story here?

Yes, the property market has peaked, and we’ve entered an historically common cyclical downturn, which, in fact, is the most benign downturn in modern history.

BUT – when you pull it apart, that downturn is entirely due to the top end of town. Without the falls there, the overall market would be growing strongly.

And some segments – your cheapies and your entry-level homes – they’re actually booming.

So tell me again what kind of market we’re in?

And tell me again what I’ve got to be afraid of?

JG

Is a rate cut coming?

by

Looks to me like the RBA has their finger on the trigger.

The talk at the moment is all about the slide in property prices. This is a little overblown in my mind, but a consolidation is definitely underway.

To get a sense of where the current momentum is, take a look at this chart here. I ripped it from a recent RBA speech.

This is ‘six-month ended annualised’. What that means is that it takes the last six months and then says, what if that pace lasted for the whole year?

So if prices grew 10% over the past six months, then the six-month ended annualised is double that – 20%.

Anyway, it amplifies trends, but it’s a good way to get a handle on what the current momentum is.

And what is shows is that the consolidation in prices is well underway in Sydney and Melbourne. On that annualised basis, Sydney looks like it’s falling at about 10% per annum. Melbourne looks closer to 5%.

We probably won’t actually hit those numbers in actual growth terms, but the momentum is clearly heading lower in those cities.

Interestingly, prices in Brisbane are dead flat, and it will be interesting to see if they get dragged down by the action in the bigger capitals. And over in Perth, it looks like the bottom is in, with prices having stabilised over the past six months.

That’s good news for Perth, but nobody cares about Perth. Not in policy circles anyway. If they did, we would have started cutting rates months ago.

And so what we’re looking at is a market that has clearly entered a consolidation phase. As I’ve stressed before, there’s no surprises here. The Sydney and Melbourne markets did get red-hot, and with the regulatory assault coming out of APRA in recent months, a consolidation really was inevitable.

The question now is, what do authorities do about it?

Now maybe they’re prepared to let prices slide for a while. They’ve been saying for a while that they’d like prices to ease a bit, but that has limits. They don’t want to crash the housing market. In fact, given the carnage it would unleash on the broader economy, they’d be looking to avoid a housing crash at all costs.

And while we’re on the topic, what does a crash in housing prices look like?

Well, I’d say if Sydney prices were consistently falling by 10% per annum, that’d be raising some red flags.

And so do we think that is what the RBA is doing here? Raising a red flag? They’ve released this clever little chart that shows that Sydney prices are currently falling at a 10% clip, and we wouldn’t want to see that going on for too long?

Are they flagging that rate cuts are coming if the market doesn’t pull up in time?

Maybe.

Here’s another piece of evidence. It compares auction clearance rates with the timing of recent rate cuts.

 

What it shows is that auction clearance rates have come off in recent months. Auctions aren’t as successful as they used to be.

What it also shows is that the last time clearance rates were this low, the RBA started cutting official rates.

Long story short, the RBA has all the justification they want to start cutting rates. No one would blame them.

The only question now is, do they want to?

As I said, I think they’ll be happy to let prices consolidate a little further, but not too much.

As far as I can tell, the RBA has their finger on the trigger already.

Make my day.

You don’t spend $1.7bn on nothing

by

Some people worry that no one is really taking crypto seriously – that’s it’s just a bunch of tech-geeks who don’t understand economics, getting all juiced on theoretical game theory problems.

And look, there are a lot of those guys. I’ve got some of them on my team. But we are well and truly past the point of this being a fire-drill.

This is the real deal people. This is happening.

Take this recent report from researchers Greenwich Associates. They reckon that right now, the financial sector is spending $1.7 billion dollars every year on distributed ledger technology.

That’s $1.7 BILLION.

EVERY YEAR.

That’s huge.

They’re not just having a dabble and they’re not happy to sit at the back of the pack. When banks get involved they want to be on the cutting edge.

Greenwich reckon that bank and other large financial sector players are moving beyond the proof-of-concept stage to commercial distributed ledger technology, or DLT products.

The study shows the budgets spent on blockchain increased 67 percent last year, with one in 10 banks and other firms reporting spending in excess of $10 million.

At the same time, the number of employees working on blockchain initiatives doubled last year.

These guys are taking it seriously.

Of course there’s still a learning curve. Greenwich’s Richard Johnson said that, “More than half the executives we interviewed told us that implementing DLT was harder than they expected.”

Ha! You’re not kidding.

Still, despite the challenges, despite the fact the world is still coming to grips with what DLT means for business, the financial sector is pushing ahead at break-neck speed.

Johnson reckons that more than three-quarters of projects that are currently under development are expected to go live within two years.

That’s right. A revolutionary block-chain investment of $1.7bn is going to come on line in just a few years.

This is a revolution folks. It will be big and it will be fast.

That’s the sound of the engineer firing up the train.

Time to get on it.

JG

The giant awakens

by

It was a strong GDP print last week… and the truth is even stronger.

I just wanted to pull out two things from last week’s GDP release.

First up, every quarter it rolls around, we’re reminded of our record-breaking run without a technical recession (two negative quarters in a row).

We’re now up to 26.5 years!

It’s pretty impressive.

Of course, to a lot of people, it means we’re doomed. The business cycle moves in… well… cycles. So what goes up must come down.

We’ve had it too good for too long. We’re due.

But this was a point Glenn Stevens made before he retired: just because we haven’t hit that arbitrary recession mark, it doesn’t mean that the business cycle is dead.

And if you look at the chart, we still get all the ups and downs of a regular economy. We just don’t stay negative for long.

And in part, that’s been about population growth, particularly through immigration. If you look at the per capita numbers, then we’ve had several recessions in the past twenty years.

So this whole “we’re due” argument… I’m not buying it.

The other thing that jumped out at me from the GDP release is the building pressure on wages.

One of the mysteries of recent years has been the wageless boom in profits – normally corporate profits and wages move hand in hand. Look at the chart below. The correlation is pretty tight.

But at the end of 2016, we saw company earnings pick up, while wages remained flat.

But now wages pressure is building. It looks like wages are catching up quickly, and they’re currently rising sharply.

Looks like we’re heading towards 5-6% per annum.

It could even be more since wages have been repressed for so long.

This could be just what Australia needs.

If you look at the last quarter of growth, it was driven by a surprising surge in exports, together with strong public spending.

Household consumption was unimpressive.

That’s been the theme for a while now.

The Australian economy needs to pass the baton over from the resources sector to the household sector. So far, households haven’t been willing to take it on.

But with more cash in their pocket, they just might be convinced.

The other thing, of course, is that higher wages will eventually feed through into higher rents.

Rental growth hasn’t been keeping pace with prices, and yields have been compressing.

Growing rents will reverse that compression, and once yields get back to normal – say around 4% nationally, then growing rents will feed through into growing prices.

And so as the household sector starts spending again, they will become the engine of house price growth.

And that’s not a moment too soon either. Largely, recent price growth has been driven by credit. But thanks to APRA and the Royal Commission, the credit channels seems to be running out of puff.

There’s a baton change needed there too.

So this is a story of a giant awakening. The Australian household sector is huge, and it’s too important to go on sitting on the sidelines.

It’s a good news story.

Why financial planning is seriously stuffed… ( my opinion)

by

Our financial planning system was always going to fall over eventually.

Everyone’s acting all surprised that the Banking Royal Commission has unearthed a graveyard of dodginess and financial abuse.

Probably not my readers since I’ve been banging on about it for years now. And the reason that I’m not surprised in the slightest is that the concept of financial planning, as it plays out in Australia is fatally flawed.

It’s a mess of misaligned interests that was always doomed to fail.

Let me explain.

The key confusion is around whether financial planners sell a product or a service.

Imagine you engage an interior designer. They offer you a service and that service is a interior design for your home. You expect them to be working with your home’s needs first. Maybe they then help you go out and get the individual elements, maybe not. But they’ve given you a service – a design.

Now imagine you walk into Ikea. They offer you a bunch of products. They will try and tune into what your needs are, find the right product for your circumstances, but at the end of the day, they’re trying to sell you something off the showroom floor. They’re not going to recommend you go down the road to the bespoke vintage homeware store, no matter how much your open plan entertaining area is calling out for it.

But that’s ok, because you know that. You’re going to them to have a look at the products they have on offer.

Now what does a financial planner do?

Well, if you look at their marketing, they’re a service. They’re there to design a bespoke financial strategy just for you.

But if you look at how they get paid, particularly by the banks, they get paid as if they’re a product showroom. They get commission based on how many units of certain financial products they sell.

When you look at the remuneration structure, the planners interests align with the banks’, not yours.

But of course, there’s some mechanism that brings those interests into alignment right.

Well, actually no. Not really. There’s codes of conduct and blah blah, but at the end of the day, the only protection you’ve got is your planners’ own ethical sensibilities.

And you know, most of the time, let’s be honest, that’s enough. Most people do the right thing.

But the law isn’t there to protect us from most people. It’s there to protect us from the worst of us.

And as the Banking Royal Commission has shown us, right now, the law is failing miserably.

So in my mind, the only way you can bring financial planning into alignment is to stop financial planners from also selling products.

Make them do what their marketing says they’ll do – design a strategy based on your unique circumstances.

Then we can have financial product showrooms – what the banks used to do. Somewhere you can go to get the right financial products for your needs, once you’ve nutted out what your strategy is.

But there needs to be a firewall between them.

Sure, financial planners can recommend particular products off that showroom floor, but as soon as they’re being paid based on how many units they sell, then there’s a misalignment of interests.

And at some point, somewhere, that’s going to break down.

And this is why financially planning, as it currently exists, is fatally flawed. It’s set up to fail.

But don’t expect to see change come from the financial planners or the banks. The system is set up to serve them. The fight needs to come from the customers.

You up for that?

Nah, me either. That’s why I walked away.

Financial Planners Busted

by

Financial planner gets busted… is it really just a few bad eggs?

Just bizarre scenes at the Banking Royal Commission last week, as Terrence McMaster, head of financial planning outfit Dover Financial, passed-out while he was giving testimony.

Perhaps it was the stress. It certainly hadn’t been a flattering few days for him.

The day before his ‘best-performing’ planners had been pulled in for a roasting.

First up it was Adam Palmer. He had been fired from AMP (an outfit now famous for their ethical standards) for poor performance. He had actually received an ‘E’ rating – the lowest possible grade.

Why? Well, turns out he had gone out and set up his own property advisory service – a service that pretty much just flogged off houses on to unsuspecting customers under the cover of ‘investment advice’. As if that wasn’t bad enough, he was then recommending his service to his clients without telling them it was his company.

That’s right, his ‘financial advice’ – advice people had to pay for – was to actually give him more money for a product they probably didn’t need.

FFS.

Next up, it was Andrew Smith. He was accused of pumping 20 customer sales of high-risk hybrid products through the system in a single day.

Then it was Chris Harris, who had also received the lowest possible rating while he was a planner at ANZ’s Millennium 3 planning arm. The royal commission heard one instance where Harris advised a widow with a $32,000 term deposit who wanted to invest to earn $2,000 a year was put into products that instead cost her $2,000 a year and made little returns.

Was Dover financial actively recruiting dodgy planners? Terrence McMaster said that wasn’t their policy when he took the stand, and said that in his industry, poor references were “actually quite normal.”

“Actually quite normal?” Seriously? This isn’t some Yelp review from a customer whose soup was a bit cold. This was an internal audit of compliance.

The only way that is ‘normal’ is if the whole damn industry is dodgy…

… and I’m starting to wonder.

The commission also heard that Dover had threatened a customer who had taken one of their dodgy planners to the Financial Ombudsman with defamation. They wrote them a letter saying that they would report them to Centrelink for fraud.

Finally, McMaster was being grilled over his “Client Protection Policy”. This document was designed to ensure that Dover wore no liability for the actions of its planners. It protected Dover and gave its clients no protection whatsoever.

“It’s a bit Orwellian to describe this as a client protection policy, isn’t it?” said QC Costello. “It’s entirely misleading, isn’t it?”

McMaster looked like he was about to agree and offer some lame defence, but Commissioner Hayne intervened to tell him that if he admits that it is misleading, then he has made a misleading and deceptive financial statement, and that’s against the law.

… And that’s when someone turned out the lights.

McMaster collapsed and had to be taken from the court on a hospital gurney.

I’d actually be laughing through my coffee if it wasn’t for the fact that ordinary people – widows and people on Centrelink – are being ripped off. The people who probably need financial help most are the ones being so shamelessly targeted.

It’s disgusting.

It’s kind of clear to me that these guys aren’t the sharpest tools in the shed. Definitely tools, but not the sharp kind.

I googled their business to write this up. Look at how their result comes up on Google:

Seriously. “In everyone’s best interest except the…”

What? Customers? I’m guessing customers.

Oh no. The full quote when you click through says ‘institutions’, but it still should have raised some red flags.

I mean, why are we talking about ‘everyone’s interests’. Why should a customer care about that? It’s like a car dealership saying “You should buy this car from me because it will be great for both of us.”

I think it goes to show just how deeply entrenched the idea is that customers are there to serve financial planners. They didn’t even think they should try and hide the fact.

Then I love McMaster’s complaints about ASIC’s ability to ban dodgy financial planners and name and shame them.

This is what he actually said:

“For example, in my legal practice I have encountered doctors who cannot see children, and male doctors who cannot see female patients without a female nurse present. Obviously, serious misconduct had occurred, but still the right to earn a living is not taken away.

“ASIC, or anyone for that matter, can in effect rob a person of a right to earn a living, as a financial planner or otherwise, by simply posting on the internet.”

So your argument here is that dodgy financial planners should be treated the same way as rapists and paedophiles?

That’s powerfully persuasive, but probably not in the way you think it is.

And of course, the real tragedy is that the whole financial planning industry trades on the idea that finance is too hard – that you need to pay a professional to do it for you.

Yes, it’s work. Yes, you have to put some time into it and skill up. But do you really have a choice?

You need to be able to make sure you’re financial planner isn’t another Dover, but how do you know? The only way to tell is to do some research yourself.

But if you’re doing the research, why not just go that extra mile and manage the whole show yourself?

Seriously, it’s not that hard. I mean, these tools could do it.

Anyone can.