The royal commissison into banking has identified some appalling behaviour by our major banks. The changes recommended by the commission will address some of the malpractice but could also make it harder for your to access finance.
One of the most concerning findings in the commission’s investigation was that the banks were charging fees for no service. CBA’s financial business charged ongoing fees to 31,500 customers between 2007 and 2015, failing to provide them with annual reviews. NAB had earlier revealed to ASIC that it charged 12,000 customers $2 million in fees for no service. The estates of upto 4000 dead superannuation customers were charged $3 million.
As a result of this and other unconscionable behaviour by our financial institutions, commissioner Hayne made some key recommendations to clean up the sector:
Borrowing
Mortgage brokers will lose their ability to charge trailing commissions (commissions over the life of the loan) and must act in the interests of customers rather than banks. An attack on mortgage brokers however, will likely reduce competition among the banks and raise lending costs. The sudden surge in bank share prices after the release of the Hayne report suggests their shareholders understand this.
Financial planning
Financial planner fee arrangements must be reviewed annually be their clients. They must also disclose any lack of independence before providing advice. Grandfathering commissions should be repealed and financial advisers who provide advice ro retail clients should face discipline by a single industry body.
Insurance
Cold calls and hawking of insurance products should stop. Car dealers should have their commissions capped for selling insurance as an add on.
Regulators
ASIC should prosecute bad behaviour more frequently, rather than just relying on mediation and infringement notices. So, how will this all affect you? Primarily, you can expect the cost of credit to rise as banks tighten their lending criteria and brokers exit the industry.
However, what’s more concerning is what is not in the report. There is no change to overall bank structure. The institution that provides financial advice (the bank), also makes financial products, creating an enduring conflict of interest that makes it near impossible to behave independently and put the customer’s needs first. The report has not named individuals who should be prosecuted for the behaviour witnessed so far (who much deterrent will there be without criminal prosecution?). And finally, the major banks have significant market power and therefore a culture that can and does prioritise shareholders over customers.
You can expect a slow return to the recklessness of the past in the financial sector as the heat from the royal commission fades and boards and executives face increasing pressure to boost profits and their personal incomes. With this declining integrity, it will remain hard to get good financial advice and partners you can trust.
At Laing Accounting & Business Solutions, we provide genuinely independent financial advice under a fair, fee-for-service model. We don’t have a culture of commissions, charging fees for work we don’t do or a structure that puts the needs of external shareholders ahead of you.
Talk to us for advice on your personal cash, superannuation and self-managed superannuation fund (SMSF).