Does Australia have mad planner disease?

If 180,000 cattle contracted mad cow disease and a further 4.4 million had to be slaughtered to eradicate it, as occurred in the UK in the late 1980s, you'd say the country had a systemic problem with bovine spongiform encephalopathy.

But if the six major corporates in the Australian financial advice sector had engaged in widespread dodgy conduct affecting hundreds of thousands of people, would that constitute a systemic problem? Not if you're a big bank boss fronting a Senate Committee but keen to avoid a Royal Commission.

Naturally, the approach of Ian Narev and co. was to talk of 'bad apples', one easily deflected by a simple body count.

Whistleblower Jeff Morris believes up to 400,000 people might be affected by poor advice, mis-selling and fraud at the Commonwealth Bank. We don't know exact numbers because the bank hasn't been especially forthcoming about its compensation scheme.

Then came Macquarie Bank, where 160,000 customers have been invited to seek compensation. NAB wasn't far behind, shoving about $15m into the hands of 750 clients wronged by the bank's planners and paying a $40m fine to the UK's Financial Conduct Authority for mis-selling in its UK subsidiaries, where 126,600 private protection insurance clients were affected.

Desperate to join the party, a few weeks back ANZ Bank admitted it charged clients for advice they didn't receive while Westpac is being sued for misleading and deceptive conduct. That leaves only one of the big six untainted by recent scandals – AMP.

At least there's a clean skin in this dirty game, then? Err, no.

In 2007, 35,000 AMP customers were caught up in a financial advice scandal with remarkable parallels to those of today. AMP aren't the innocents, they're the trailblazers, the ones clearing a path for every other wealth manager to follow, which over the course of the next decade they did.

Systemic issues? Nah, just a few bad apples and a few hundred thousand potential victims.

So, is Australia's financial planning industry completely and utterly mad?

No, quite the opposite in fact. For a big bank a few compo claims, quietly managed beyond the reach of a disinterested and dysfunctional regulator, are a small price to pay for such a profitable business like wealth management.

As for the planners, they're responding rationally to the incentives before them. If their promotion prospects are governed by sales performance, they'll focus on sales. Under the current system, there is no incentive to encourage good advice and plenty to encourage needless, inappropriate sales. As they say in B-School, 'what gets measured gets done'. Sales are measured; advice isn't.

The current system even suits the regulators, who have outsourced their oversight functions to the very companies committing the misdeeds. When things go wrong, they merely point the finger and say, 'it's them, not us'. You really have to admire the level to which this kind of buck-passing has ascended.

The only mad people in this entire shemozzle are those that wander into a bank to deposit a cheque and end up being enticed by a teller into seeing a 'financial advisor'. And they're not really mad, just foolish enough to believe that someone with a name badge that says 'Advisor' will actually give them advice.

If you ever need financial advice, please, avoid the big banks, avoid AMP, avoid Macquarie Bank and avoid all of the independent-looking chains that are licensed by them (if you can't see a logo, go inside and ask).

Seek out a planner where you pay for advice by the hour, where commissions, kickbacks and trails aren't part of the remuneration equation. And when you've got the advice, get a second opinion on it.

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