The government has received the report from the Royal Commission into the banking industry and the news is scathing. There will be massive changes to the industry, assuming the government heeds the advice of High Court justice and royal commissioner Kenneth Hayne for a number of major reforms. The reforms are wide-ranging and will impact almost everyone at some level. Here are some of the key issues that will impact consumer banking and financial services.
Hayne’s 72 recommendations are wide ranging. But they are largely designed to guide the behaviour of the people and companies that we entrust to protect our financial assets. While Hayne has recommended further investigations and potential prosecutions for companies, directors and trustees, his proposed restructures are designed to remove the incentives for the financial services industry to take advantage of vulnerable customers and to mismanage funds for their own benefit.
Shopping For A Mortgage
The mortgage brokerage business is set for a massive shift as the royal commission says the days of trailing commissions are numbered. New rules will turn the industry around with mortgage brokers required to act in the best interests of the intending borrower and not the bank providing the loan with breaches resulting in fines. With the move away from trailing commissions, borrowers should pay the mortgage broker for their services.
Most banks already charge fees for processing loans and other administrative tasks. So it’s not like borrowers aren’t used to paying fees for signing onto mortgages. Brokers will charge fees for their services which, I expect, will result in a major restructure of that industry.
Hayne gave a lot of attention to the superannuation industry with almost an entire volume of his report dedicated to the super industry.
For starters, a number of providers including IOOF, Suncorp, NAB, and the Commonwealth Bank will be referred to regulators to establish whether criminal or civil proceedings should be instigated. If you have super with one of those funds, it might be a good time to look carefully at the fees you’ve paid and the details in your statements.
And the practice of new employers defaulting you into their preferred fund could be going the way of the dodo as well. Workers will only be able to be defaulted into an account once in their working life. That’s likely to be a contentious issue as it will mean the dubious practice of people having multiple accounts that attract lots of fees for companies will become less prevalent. Fees for basic advice will also be banned, further curtailing the superannuation fund gravy train.
If you’ve shopped around and consolidated multiple funds then some of these changes won’t hit you directly although the pressure to reduce fees should result in all of us having a few more shekels in our retirement funds.
High pressure sales
There will be tighter scrutiny of how insurance and other financial products are sold. And funeral services will be deemed financial products so ASIC will have oversight of that industry as well.
Anyone who has purchased a car has been subject to the hard sell on insurance products. Hayne’s report proposes that a cap will be imposed on the commission that can be paid to car sellers for add-on insurance products.