tag:theconversation.com,2011:/africa/topics/wealth-management-13595/articleswealth management – The Conversation2018-09-28T08:45:52Ztag:theconversation.com,2011:article/1039982018-09-28T08:45:52Z2018-09-28T08:45:52ZRoyal Commission shows banks have behaved appallingly, but we’ve helped them do it<p>The term deposit has matured. Initial scepticism over the timing, scope, and overall need for a royal commission into financial services has transformed into deep concern about the culture and practices in one of our most important industries. </p>
<p>Malcolm Turnbull, the (perhaps not coincidentally) ex-prime minister, admitted it had been a “<a href="http://junkee.com/opposed-banking-royal-commission/155546">political mistake</a>” to delay the royal commission by nearly two years. </p>
<p>None of the major banks have escaped the Commission’s ire. </p>
<p>Perhaps that’s because none of them have had an incentive to behave better. There’s been little financial reward for being the bank to improve.</p>
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Read more:
<a href="https://theconversation.com/banking-royal-commissions-damning-report-things-are-so-bad-that-new-laws-might-not-help-104058">Banking Royal Commission's damning report: 'Things are so bad that new laws might not help'</a>
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<p>Australian banks generate the <a href="http://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-6-returns-on-equity-cost-of-equity-and-the-implications-for-banks.pdf">second-highest returns on equity in the world</a>, and so far none has been keen to let those returns go. </p>
<p>In his interim report, Royal Commissioner Kenneth Hayne <a href="https://theconversation.com/banking-royal-commissions-damning-report-things-are-so-bad-that-new-laws-might-not-help-104058">pilloried them</a> for their greed, putting profits before customers. He hinted that submissions he has not yet fully examined may uncover even more misconduct.</p>
<h2>Conflicts in providing credit</h2>
<p>Are loan providers offering customers what’s best for them, or what’s best for the bank? </p>
<p>A disproportionate share of loan products recommended by mortgage brokers working for firms affiliated with banks are produced by other firms affiliated with those banks.</p>
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Read more:
<a href="https://theconversation.com/vital-signs-for-all-its-worth-the-banking-royal-commission-could-hurt-a-generation-of-battlers-103943">Vital Signs: for all its worth, the banking royal commission could hurt a generation of battlers</a>
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<p>Mortgage brokers currently help originate more than half of all new loans. They operate under an opaque commission structure with rewards that are unlikely to align with the customer’s best interests. </p>
<p>A change to up-front, transparent commissions should be mandated, and enforced by the Australian Securities and Investments Commission. </p>
<h2>Irresponsible Lending</h2>
<p><a href="https://download.asic.gov.au/media/2243019/rg209-published-5-november-2014.pdf">ASIC guidelines</a> merely require banks to offer customers products that are “not unsuitable” for their needs. </p>
<p>The guidelines allow banks to do things such as using rough guides for household expenditure rather than individually examining the circumstances of each borrower. </p>
<p><a href="https://www.afr.com/personal-finance/westpac-not-an-irresponsible-lender-20180920-h15o6z">Some have argued</a> that this is a better practice than making inquiries of borrowers, who are likely to exaggerate their ability to repay loans. But it runs the risk of constituting a dangerous form of financial advice.</p>
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Read more:
<a href="https://theconversation.com/how-liar-loans-undermine-sound-lending-practices-87073">How 'liar loans' undermine sound lending practices</a>
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<p>If a loan is recommended to a customer, they might infer from that the bank has deemed it as being appropriate for their needs, rather than merely “not unsuitable”. </p>
<p>In several instances detailed to the commission, customers borrowed as much as they have been to allowed by banks, only to later blame the banks for not protecting them from themselves.</p>
<p>Banks also argue that there is a trade-off between obtaining accurate documentation and processing loans quickly.</p>
<h2>Reformed?</h2>
<p>Inadequate internal processes have led to customers being offered products that they can’t use, such as financial advice for dead people, or insurance that’s impossible to claim against. </p>
<p>These failings have been rightly condemned by the commissioner, even if they might not have affected a significant portion of the banks’ clients.</p>
<p>Ahead of the report, the banks have been trying to <a href="https://www.afr.com/business/banking-and-finance/financial-services/westpac-warns-staff-on-culture-as-banks-brace-for-hayne-pain-20180927-h15y1c">pre-empt its findings</a> by arguing that their primary focus has moved from “sales” to “service”.</p>
<p>They say their internal processes have already improved, and bad apples weeded from the staff.</p>
<h2>It’s our fault, too</h2>
<p>Commissioner Haynes said that one obstacle to greater consumer power is an alarming lack of financial literacy among consumers, which has also been unearthed by the commission. </p>
<p>Banks exploit our loyalty, our inertia, and our inability to negotiate. </p>
<p>They also help exacerbate these things, by offering too many products that are too hard for the average person to compare.</p>
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Read more:
<a href="https://theconversation.com/financial-literacy-is-a-public-policy-problem-84695">Financial literacy is a public policy problem</a>
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<p>If we educated ourselves, many of the problems identified by the Royal Commission would disappear.</p>
<p>Making public the actual interest rates paid on our loans, the fees paid to advisers and brokers, and consumer credit scores would help as well. </p>
<p>But it will only help us if we are willing to help ourselves. </p>
<p>The community rightly expects a lot from banks, but a second thread running through the Royal Commission’s interim report is that but we need to expect more from ourselves as well.</p><img src="https://counter.theconversation.com/content/103998/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Grant does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The banks get most of the blame in Commissioner Hayne’s explosive report, but there’s some for us as well.Andrew Grant, Senior Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/574562016-04-08T16:36:15Z2016-04-08T16:36:15ZHow blockchain could be used to make trusts more transparent<figure><img src="https://images.theconversation.com/files/118001/original/image-20160408-23663-g32tm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Beyond bitcoin.</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>Amid the <a href="http://www.mirror.co.uk/news/uk-news/panama-papers-david-cameron-admits-7711340">outcry</a> over David Cameron’s tax affairs is the UK prime minister’s intervention in 2013 to block EU transparency rules <a href="http://www.theguardian.com/politics/2016/apr/07/david-cameron-offshore-trusts-eu-tax-crackdown-2013">regarding offshore trusts</a>. It was decided that trusts should not be held to the same standards as companies when it came to making the end owners and beneficiaries publicly known. </p>
<p>But now the Panama Papers raise important questions as to whether trusts ought to be more open to public scrutiny. A major reason for this relates to fairness when it comes to paying taxes. Blockchain may provide a solution to this problem, enabling trusts to be more transparent, while ensuring the security of their holdings, too.</p>
<p>Trusts are often highly complex legal arrangements; but they tend to work on the same fundamental basis. First conceived many hundreds of years ago, trusts provide a unique method of property management. This uniqueness relates to how wealth is used, and relies on the separation of beneficial ownership from the responsibilities of property management that come with holding legal title. </p>
<p>Trusts come in both public and private forms. But their history points to an intimate desire for individuals and families to be able to preserve their wealth and, importantly, pass it on to the next generation. </p>
<p>One popular story of how trusts came into being involved the Crusaders of the 11th and 12th centuries who, before leaving to fight in the Middle East, arranged for their land to be tended and managed by a friend in trust (a trustee), on behalf of their family (as beneficiaries). This method of property management and transfer had not previously been recognised by Common Law, which viewed the friend as taking the land absolutely when given charge of it. But Equity, at the time a separate body of law in England and Wales, <a href="http://www.jstor.org/stable/1324734?seq=1#page_scan_tab_contents">saw things differently</a>. </p>
<p>Based on fairness, Equity developed rules that protected the beneficial interest of the family, while at the same time applying strict fiduciary duties and obligations of trust and loyalty to the friend. This meant that the friend had to look after the property as they had been directed to by the Crusader. </p>
<p>Trusts now appear in the form of international commercial investment and trade vehicles; public and private pension funds; and charities, to name but three of the more economically significant. Yet those same foundations and consensual principles between the Crusader, the friend and the family fundamentally remain. </p>
<p>This means that trusts conform to traditional privacy models found elsewhere in banking and finance, insofar as they shield from public view the identities of the objects of the trust, as well as the nature of many of the trust’s investments and transactions. It is primarily in regard to where this “shield” is positioned that greater levels of transparency apply on the blockchain.</p>
<h2>Smart contracts</h2>
<p>As part of some <a href="https://www.academia.edu/23964505/Trusteeship_in_a_Post-Trust_World_Property_Trusts_Law_and_the_Blockchain">recent research</a>, I have been considering how blockchain technology (most famous for its role in the cryptocurrency Bitcoin) and other legal-like processes that blockchain facilitates, namely computer programs called <a href="http://www.fastcompany.com/3035723/app-economy/smart-contracts-could-be-cryptocurrencys-killer-app">“smart contracts”</a>, might be mapped onto trusts law and trusteeship.</p>
<p>The key to the question of whether or not blockchain can make trusts more open to the public lies in its fundamental characteristics. Blockchain is essentially a peer-to-peer, distributed ledger system that is able to register information in an immutable way. This could take the form of a register of legal titles to property and beneficial interests, both of which are central to trusts. </p>
<p>In this sense, blockchain is a highly reliable witness regarding the information it deals with. Furthermore, as part of the process of adding or registering information on blockchain, that information is announced publicly, providing an entire, transparent history capable of public scrutiny. This does not mean that the blockchain is not private – cultural as well as commercial sensitivity around the privacy of financial information can still be maintained – but it is achieved in a different way. </p>
<p>Using two sets of encrypted keys, one public and one private, to validate transactions provides the possibility for secure, private spaces that nevertheless remain in public view. Unlike other methods that maintain privacy of investments and transactions by shielding the entire process from public view, including the identities of individual parties, the blockchain breaks the flow of information in another place: by keeping public keys anonymous. </p>
<p>So a trust could take the form of a “private space”. More specifically what is legally defined as a trust could be mapped onto the blockchain processes behind that “private space”. This would create, <a href="https://www.academia.edu/23964505/Trusteeship_in_a_Post-Trust_World_Property_Trusts_Law_and_the_Blockchain">what I call a “smart trust”</a> – a secure private space, yet one primed for public scrutiny.</p>
<p>The potential of the blockchain as described here is something of a “third-way” to existing privacy models. Because trusts come in many shapes and sizes, blockchain “smart trusts” would undeniably suit some types more than others – it is not a case of one size fits all. While trusts have a very long history, the blockchain has a very short one. It will take time to understand if and how the two might work together. But if greater levels of honesty and transparency are needed, the blockchain could provide an answer.</p><img src="https://counter.theconversation.com/content/57456/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Herian receives funding from AHRC. </span></em></p>The Panama Papers raise important questions as to whether trusts ought to be more open to public scrutiny. Blockchain could provide the answer.Robert Herian, Lecturer in Law, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/447052015-07-23T20:51:51Z2015-07-23T20:51:51ZWhy you shouldn’t fear your finances (you’re probably richer than you think)<figure><img src="https://images.theconversation.com/files/89568/original/image-20150723-22849-e5rptu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Most of us think we're poorer than we actually are.</span> <span class="attribution"><span class="source">Piggie bank via www.shutterstock.com</span></span></figcaption></figure><p>Do you procrastinate about taking care of financial matters in your life? Recently a <a href="http://www.nytimes.com/2015/07/12/upshot/investing-in-the-dark-the-biggest-cost-of-fear-is-paralysis.html">fascinating article</a> about financial procrastination appeared online. </p>
<p>The <a href="http://scholar.harvard.edu/sendhil">author</a> publicly admitted that “after years of procrastinating,” he finally logged on to his retirement account. It took him years to get around to dealing with it because the entire task made him <em>anxious</em>. </p>
<p>Moreover, he stated he didn’t remember his password, and his account choices were a mess. </p>
<p>For many of us there is nothing special about any of this. Most people dread and put off dealing with financial matters. </p>
<p>However, what was astonishing about this story is that the writer is an eminent economist who does research in personal financial matters such as <a href="https://www.russellsage.org/publications/insufficient-funds-pb">savings</a>, <a href="https://www.aeaweb.org/articles.php?doi=10.1257/aer.98.2.304">annuities</a> and <a href="http://www.brookings.edu/research/papers/2008/09/mortgage-system-barr">mortgages</a>. If this man has trouble dealing with his retirement accounts, is there any hope for the rest of us?</p>
<h2>Do you have to be smart to be rich?</h2>
<p>There are many reasons people procrastinate on dealing with financial matters. There is even a new special <a href="http://www.nytimes.com/2015/02/10/your-money/financial-therapy-for-people-stressed-by-money.html">field in psychiatry</a> that deals with the <a href="http://www.forbes.com/sites/learnvest/2013/10/01/what-its-like-to-be-a-financial-therapist/">issues people have surrounding money</a>, spending and saving. Unfortunately, while many of us have issues about money, the specialized help that is available is primarily useful for people with lots of wealth or income.</p>
<p>Some of my research can help people who procrastinate about dealing with their finances. One reason many people don’t want to deal with money issues is because they think they are not smart enough. However, when I looked into this, the results were very clear: there is <a href="http://researchnews.osu.edu/archive/intlwlth.htm">no relationship</a> between intelligence, measured by IQ, and a person’s wealth. It’s generally true that the smarter you are, the more income you earn. However, earning more doesn’t give you any special advantage in saving or building wealth.</p>
<p>Sendhil Mullainathan, the economist who wrote the column on procrastinating, appears to be a poster child for the lack of a relationship between IQ and wealth. He is clearly very smart: he won a <a href="http://www.macfound.org/fellows/694/">MacArthur genius</a> award and is a full professor at <a href="http://economics.harvard.edu/news/scarcity-why-having-too-little-means-so-much-sendhil-mullainathans-new-book">Harvard</a>. </p>
<p>But he probably doesn’t have much wealth since he states in the article, “I want to reach my retirement with a nest egg that allows me to maintain my current lifestyle and to travel a bit.” Rich people don’t dream of retiring with just enough money to take a few trips. </p>
<p>If you are putting off dealing with money issues because you don’t think you are smart enough, don’t wait any longer. Being smart isn’t going to make you rich. Whether you are dumb or smart you can save. The secret is simple: just spend less than you earn.</p>
<h2>Are you richer than you think?</h2>
<p>Many people don’t want to deal with their financial issues because they expect the news to be depressing. Most of us are experts at avoiding bad news. However, another research paper I wrote shows that for most people, the financial news is actually <a href="https://afcpe.org/assets/pdf/vol1112.pdf">much better</a> than expected, which is perhaps another reason not to procrastinate.</p>
<p>The <a href="https://www.nlsinfo.org/">National Longitudinal Surveys</a>, a long-running research project sponsored by the Bureau of Labor Statistics, asked people to estimate their net worth. Then the survey took them step by step through the value of all of their assets and the value of all their debts. From this information I was able to calculate their actual net worth. The result for most people was much better than they feared. For every dollar of wealth actually held, the typical individual believed they only had 62 cents. </p>
<p>In simple terms, the research showed that the typical person underestimates their financial position by more than a third. The financial unknown is scary but the actuality for most people is not as frightening as they fear. </p>
<p>I encourage all of you to sit down, close your eyes and ask yourself: are we in debt, break even or do we have money? Write down your best guess for how much you are in debt or how wealthy you are. Then add up all of your assets and subtract all of your debts (an easy online calculator is available <a href="http://finance.yahoo.com/calculator/retirement/bud07/">here</a>). The results will pleasantly surprise most of you.</p>
<h2>Why should you avoid procrastination?</h2>
<p>Research suggests people who avoid procrastinating do financially better. A recent working paper by two economists <a href="http://conference.nber.org/confer/2015/SI2015/HF/Brown_Previtero.pdf">Jeffrey Brown and Alessandro Previtero</a> shows that people who procrastinate are less likely to participate in savings plans, take longer to sign up when they do decide to participate, and contribute less money to their retirement plans than non procrastinators.</p>
<p>You will not become rich or suddenly have enough money to retire by reading just one article. However, know that lots of people procrastinate about financial matters. If you have been procrastinating because you don’t think you are smart enough or because you fear the results, research suggests you will find the news is not bad. </p>
<p>So make that first step and try to deal with that financial task you have been putting off. It is like jumping into a pool, lake or ocean; the water is really not as bad as you fear, and taking the jump will likely make you (feel) richer.</p><img src="https://counter.theconversation.com/content/44705/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Jay L Zagorsky has been affiliated with the National Longitudinal Surveys (NLS) for 20 years.</span></em></p>Do you procrastinate about taking care of financial matters in your life? Recently a fascinating article about financial procrastination appeared online. The author publicly admitted that “after years…Jay L. Zagorsky, Senior Lecturer, Questrom School of Business, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/343472014-11-19T19:26:06Z2014-11-19T19:26:06ZBeyond the FTA: China still tough for Aussie companies to crack<figure><img src="https://images.theconversation.com/files/64943/original/image-20141119-16183-o70lsn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australian companies still face highly competitive and complex markets in China despite the China-Australia Free Trade Agreement.</span> <span class="attribution"><span class="source">Lukas Coch/AAP</span></span></figcaption></figure><p>During the APEC meeting in Beijing, President Xi Jinping announced China will spend <a href="http://www.ft.com/cms/s/0/806fe102-67de-11e4-acc0-00144feabdc0.html#axzz3JTmVdQDv">US$10 trillion on imports</a> over the next five years and US$1.25 trillion in foreign investment over the next ten years. While these are very large figures, they do not amount to much of an annual increase over current volumes. Instead, they signal China’s long-term commitment to further globalisation. </p>
<p>The <a href="https://www.pm.gov.au/media/2014-11-17/landmark-china-australia-free-trade-agreement">China-Australia Free Trade Agreement</a> is a game changer in more ways than one. It improves the business outlook for Australian exporters. It also dismisses concerns that Australia’s relations with its traditional allies have alienated China and harmed economic relations. </p>
<p>Australian goods and services are now supported by invigorated business links to China and better access to global markets. If Australia maintains its share of Chinese total imports and outbound direct investment, China will be Australia’s major trade and investment partner for the next decade at least. <a href="http://www.theaustralian.com.au/opinion/columnists/a-partnership-for-prosperity/story-e6frg74x-1227127497430">Expectations</a> are that mutual self-interest will continue to pull Australia closer to China. </p>
<p>From a business perspective, the pull effect has been operational during most of the mining boom. This really was a China boom, driven by the large demand from China for Australian resources.</p>
<p>The agreement ensures trade will increase by billions of dollars. China has been Australia’s biggest trading partner since 2009. In 2013, Australia’s two-way trade with China <a href="http://trademinister.gov.au/releases/Pages/2014/ar_mr_140521.aspx">surpassed $150 billion</a>. </p>
<p>The main winners will be Australian agriculture, service industries, resources and certain manufacturing industries. Tariff reductions across the board will create new opportunities for Australian businesses and increase their competitive advantages in the Chinese market. Chinese consumers and producers will also get better access to Australian agribusiness products, new financial services and manufacturing products. </p>
<h2>Beyond the FTA</h2>
<p>This new China boom will pull Australia into the Chinese business orbit, but it will take significant effort on the Australian side to break into Chinese consumer and producer markets. The much-quoted “<a href="http://www.theaustralian.com.au/opinion/editorials/prepare-for-the-dining-boom/story-e6frg71x-1226623000928">dining boom</a>” will require deeper integration with Chinese businesses across different industries and involve risks. </p>
<p>In many areas covered by the agreement, Australian businesses and their Chinese partners face a “liability of newness”. This will be particularly apparent in markets that are newly open to Australia including wealth management, insurance and private health care. </p>
<p>The Chinese market is highly fragmented and fiercely competitive. For example, China’s dairy supply chain is long and complex with many parties involved. To overcome supply chain constraints, agribusiness companies such as <a href="http://www.fonterra.com/global/en/hub+sites/news+and+media/media+releases/fonterra+and+beingmate+initiate+global+partnership+in+chinas+high-value+infant+formula+market/fonterra+and+beingmate+initiate+global+partnership+in+chinas+high-value+infant+formula+market">New Zealand dairy co-operative Fonterra</a> have chosen to partner with Chinese food manufacturers. </p>
<p>Australian business are now investing in supply chains that stretch from the Australian countryside to Chinese consumers in second and third-tier cities. This investment requires new infrastructure at both ends to convert lower tariffs into better consumer prices. This could mean a new way of economic engagement between Australian and Chinese businesses.</p>
<p>Previously, Australia-China trade was characterised by large resource deals with a small number of multinational corporations. Increasingly, we will see an increasing number of smaller deals involving many more parties. These deals will require a more sophisticated understanding of the Chinese market and closer coordination with Chinese partners. </p>
<p>In the services sector, the ground for new markets and products has only been established by recent reforms. Xi initiated these with his <a href="http://www.china.org.cn/china/third_plenary_session/2013-11/16/content_30620736.htm">deregulation agenda</a> during the Third Plenum in November 2013. Australian providers will be among the first to trial these new policies.</p>
<p>If experience from previous reforms is anything to go by, early movers will reap huge benefits. However, as Chinese domestic competitors increase in number and sophistication, they will also exert pressure on Australian service providers. For example, the increasingly globalised Chinese banks are undergoing rapid reform to improve their performance and competitiveness. </p>
<p>Australian manufacturers will need to invest time and effort to build personal relationships and inter-organisational trust. Results from a recent Australia China Business Council survey show that on average Australian businesses spent around 12 months researching the China market before entry. Building effective personal relationships and inter-organisational trust can take much longer than that. These manufacturers will be keen to enter Chinese domestic supply chains and through their Chinese contacts gain access to global value chains.</p>
<p>Chinese direct investments in Australia will increasingly play a bridging role between businesses on both sides. The easing of investment approvals for Chinese private investors is important. It will enable smaller Chinese investors who are closer to their domestic consumer market to partner Australian business seeking access to consumers and supply chains. The lifting of the investment threshold to $1.1 billion for private investors will mean increasing numbers of Chinese businesses enter Australia to invest.</p><img src="https://counter.theconversation.com/content/34347/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>During the APEC meeting in Beijing, President Xi Jinping announced China will spend US$10 trillion on imports over the next five years and US$1.25 trillion in foreign investment over the next ten years…Hans Hendrischke, Professor of Chinese Business and Management, University of SydneyWei Li, Postdoctoral Fellow, Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.