Yes, Ralph, it is a conspiracy

Former Commonwealth Bank chief Ralph Norris is missing the point if he thinks CBA’s financial planning problem is simply “rogue people”, but there’s nothing unusual or surprising in that. As Jack Nicholson might have said, bankers can’t handle the point.

The point is that there are two types of financial planners or advisers (both words are used interchangeably): those who sell and those who don’t. Customers can’t tell the difference, which is the real point.

Sir Ralph, as he is now known, was in charge of CBA when the conduct for which his successor, Ian Narev, is now apologising took place. He gave an interview over the weekend in which he said: “Large organisations are always at risk of having these sorts of things happen. You deal with it. Certainly there is no way this is some form of conspiracy. It is just some deceitful people did some things that they should not have done.”

Actually it is conspiracy, and the government is in on it.

Banks use financial advisers/planners to sell products and reward them according to how much they sell. There are other people not employed by banks who are also called financial advisers and planners who don’t sell and are paid by their clients.

It is very difficult for customers to tell the difference between them, except that the second lot cost more. The one who is not a sales person will carefully explain that fact; the one who is, will not.

The system of financial advice is inherently and deliberately deceptive because the most effective sales environment is where the customer doesn’t realise he or she is being sold to. Banks use the term ‘adviser’ or ‘planner’ as a synonym for ‘salesperson’; clients think an adviser advises. It is, at heart, simply a matter of semantics.

The Coalition government is in on the caper. Finance Minister Mathias Cormann has made some changes to the proposed Freedom of Financial Advice (FoFA) amendments to clarify his undying opposition to sales commissions for advisers/planners, but there are still plenty of carve-outs that allow banks to reward them for selling.

The ban on commissions is being narrowed down to specific products and “personal advice”, which allows commissions for “general advice” -- for example, aggregate product sales across several products -- or commissions to be paid as a share of total revenue above target.

Also, the amendments seem to allow payments that are not “payments”, as defined, such as soft dollar, employee share schemes, promotions and rebates.

The amendments also explicitly allow the payment of commissions for “execution services”, where the advice has been given by someone else. This “permissible revenue” is then allowed to be put into a pool and shared with other employees of the licensee -- including the advisers/planners who sold them. What a joke.

Banks will also be allowed to incentivise their advisers based on sales volumes, according to a balanced scorecard, which sets targets to be achieved to meet a 10 per cent bonus. What’s more, these bonuses can be paid on top of other conflicted remuneration.

Other carve-outs allow old commissions to be grandfathered. Without the client’s knowledge, where an adviser moves to another licensee, or where the client moves from a super fund to a pension, and wholesale commissions -- such as volume rebates -- are allowed to be passed onto advisers as well.

In other words, the government is deliberately constructing an absurdly complicated set of regulations designed to allow banks to continue using advisers/planners to sell their superannuation and wealth products.

Ralph Norris’ predecessor as CEO of Commonwealth Bank and head of the government’s new financial system inquiry, David Murray, won’t suggest anything be done about this either.

His interim report due out this week will not recommend any changes to a system that he helped design.