How Will The Banking Royal Commission Report Affect You?

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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.

Superannuation

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.


Comments

    If they follow through with the biggest changes, its going to change the industry massively. Take just the suggested mortgage broker changes. At the moment, they're incentivised to get money from the trail payments, which means various things. Not all are good for the borrower long term.

    On the other hand, getting those trail payments means the upfront costs to the borrower are lower, which is where most issues will be for a borrower. So moving the costs to upfront makes it harder for new borrowers to get into the market, adding thousands to what they need.

    There's a trade-off here that might be worth it - paying the amount over time means an easier payment to handle weekly. If that upfront fee is $5k, that's $5k more a first home owner needs to have before they can buy. Is $10 a week more worth it, versus $5k up front?

    Alternatively they bypass the broker totally and go straight to the banks, which have a VERY vested interest that still wont necessarily be in the borrowers best interests. Brokers still serve a valid service, you don't want to kill that industry off.

    Super changes could have the biggest positive changes, but people wont see them for decades. That's going to be a tricky one, because you know the rules wont stay still for that long. But the general plan of minimising unnecessary fees is a good one, especially when someone is just starting out and bouncing from job to job.

    Personally, there's another aspect of banking that hasn't been looked at yet, and that's the service fee on electronic transactions. Yes, they're there for a purpose, but as our volume of electronic transactions has gone up, the costs haven't gone up at the same rate.

    Net result is businesses paying a larger percentage of their revenue to the banks acting as a middle man. Which means a bigger portion of what was their profit margin. With other costs going up, its driving businesses out of business, or to do illegal acts.

    I think the Commission is a bit rough on Chair of nab, Ken Henry.
    The RC is not God, and he honestly answered a question about if something is right or wrong and he correctly answered as to what he feels about his answer. That is the only answer a person can give. It is Not insulting the RC. It was insulting him by pressing the issue in words he had to accept

      Is that you Ken Henry?

      The broken English and support of a human shitstain tells me you are a bot.

    If you have supper with one of those funds,In that case, I'd make sure I had a minion food taster with me. Bunch of greedy bar stewards.

      Oops... clearly dinner was on my mind when I wrote that. Fixed

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