Nurse's testimony to banking royal commission sobering comment on finance sector

Today, the McDowalls are still renting and working harder than ever just to repurchase a home to live in in retirement.

Any Australian considering taking out financial advice should first read McDowall’s testimony to the commission.

“I’m quite an educated person and I feel that when you go for advice, it’s a bit like you go to a doctor, and he’s been trained to deal with your problem. You go to a lawyer, and the same thing. So I felt that [the bank people the couple dealt with] being professional financial advisers, and business bankers through the Westpac Bank, that we had been to a big bank that we had banked in for 16 years, and I never thought that I would be lied to.

“I thought what I was being told was the truth and I just felt that I didn’t see it and I just felt embarrassed and that I couldn’t tell my family and friends. I just told them that we had changed our mind.”

Jacqueline McDowall fights back tears in the witness box.

Jacqueline McDowall fights back tears in the witness box.

The McDowalls’ case exposes many of the issues in Australia’s financial advice sector.

First there is a substantial gap between consumers’ expectations of what they will receive from an adviser – independent and accurate advice in their best interests – and the reality.

Nurse Jacqueline McDowall told the commission of feeling "humiliated" and "stupid" after acting on the dud financial advice she and her husband received from a Westpac employed financial planner.

Nurse Jacqueline McDowall told the commission of feeling “humiliated” and “stupid” after acting on the dud financial advice she and her husband received from a Westpac employed financial planner.

Photo: Julian Smith

In reality, just one in three financial advisers in Australia has a university qualification, and their standards are such that the corporate regulator does not class them as “professionals” in the same way as doctors and lawyers.

In reality, the person providing you with financial advice is often employed by a large bank or financial institution which also has a direct financial interest in you taking out one of their products.

This problem of “vertical integration” is a relatively new phenomenon.

The early 2000s saw an explosion in corporate deal-making as investment banks reaped handsome fees from their less flashy cousins by advising Australian domestic banks to go on a buying spree of wealth management companies.

Australia’s now $1.6 trillion superannuation honey pot was just beginning to burgeon, and banks thought they’d better get a piece of the action.

The competition watchdog felt unable to stop the feeding frenzy. Competition laws only enable the regulator to block a merger if there is a “substantial lessening of competition” within a particular market. Banks and wealth management were essentially swimming in different pools – one making loans and the other advising consumers on where to put their money – so the regulator waved them through.

The top competition watchdog at the time, Allan Fels, is now calling for the egg to be unscrambled, and the provision of financial advice to be separate to the product manufacturers, i.e. the banks.

Australians would have been far better served if a way had been found two decades ago to stop the mergers.

Today, the opponents of forced separation – not least of all the banks – openly fret about what would happen to the provision of financial advice if big banks were forced to exit the sector.

They claim that having the big banks in the financial advice business at least gives it some scale and credibility.

The McDowalls’ experience clearly reveals this for the fancy it is. Ordinary Australians do not need financial advice if that advice is lazy, inappropriate and damaging.

When it comes to overcoming the wider problem of vertical integration and designing a system which best serves consumer interests, the adage is true – you wouldn’t start from here.

However, the reality is that forcing all the banks to put their businesses on the chopping block at once would be unlikely to help shareholder value.

The benefits of ensuring better advice for customers would have to be weighed against any costs.

But even without such radical surgery, Australia’s financial advice sector is set for a major reshape.

In reality, the bank’s great experiment with wealth management is unwinding of its own accord. All banks but Westpac are already selling or canvassing plans to sell their wealth management arms, which have proven a failure not only for customers, but for shareholders who have seen only meagre and declining profit margins on the wealth businesses.


Because in reality, it’s pretty hard for a group of fancy suits to consistently beat the sharemarket – at least by enough to justify their fees.

The rise of low-fee and automated, or more passively managed, index funds is only going to hasten the demise of wealth managers and the adviser channels designed to funnel ordinary consumers into their arms.

For most Australians the path to prosperity will remain much as it always has been: work hard, save hard, have part of your salary forcibly put into superannuation and put the rest into buying a family home which will be tax free and house you in retirement.

Ordinary Australians, from nurses to teachers to tradespeople, ought to remain highly cynical about anyone giving them financial advice purporting to tell them otherwise.

If it sounds too good to be true, it probably is.

Jessica Irvine

Jessica Irvine is a senior economics writer for Fairfax Media.

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