SAVERS, borrowers and investors need to take more interest in their own money matters following the banking royal commission’s scathing final report.
Recommendations to ban ongoing commissions and cut fees for financial advice, mortgage broking, insurance and superannuation have been widely welcomed, and will prevent rip-offs that have cost Australians hundreds of millions of dollars.
But they are also tipped to cause financial professionals to raise upfront fees or quit altogether.
Whether it’s getting a home loan, buying cars, taking financial advice or signing up for life insurance, many sectors are impacted by Commissioner Kenneth Hayne’s final recommendations.
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Financial services research group Canstar says the most controversial recommendation, to ban mortgage brokers’ trailing commissions and make customers — rather than banks — pay upfront for their services, could lead to “quite an exodus” of brokers.
Canstar’s group executive of financial services, Steve Mickenbecker, said while borrowers would baulk at paying brokers more than $2000 upfront to get a mortgage, the royal commission was good for consumers in many ways.
“It doesn’t tighten up on lending criteria more than we have seen. That’s great news because the banks have already tightened up enough,” he said.
“The other major change is that borrowers, investors and super fund members can now get a higher level of confidence in the advice they’re receiving.”
With more regulator oversight and bans on trailing commissions for advice and financial products, consumers were less likely to be sold things that were not right for them, Mr Mickenbecker said.
“One thing the royal commission has shown us all is that people who don’t take enough interest in their own finances end up getting a lesser deal than they should.”
Both the Federal Government and Labor have agreed to all 76 recommendations although the government wants to wait-and-see on the borrower-pays change for mortgage brokers.
Financial advisers, a key target of the commission after big banks charged fees for no service and fees to debt people, have warned that advice could become more expensive once all trailing commissions are banned.
Lifespan Financial Planning CEO Eugene Ardino predicted a dramatic rise in upfront fees and fewer people being able to afford advice.
“Upfront fees currently average $2000 to $4000. Advisers are prepared to initially service clients at a massive loss because of the possibility of an ongoing relationship with the client on a retainer basis,” he said.
“If you consider a reasonable hourly rate to be $250-$400, then the real price for (comprehensive) advice ranges from about $6000 to $14,000. If you reduce the certainty of the ongoing fee arrangements, advisers will need to ensure they cover much more of their costs from every hour spent with clients.”
Other Hayne recommendations aim to prevent dodgy car finance by no longer making car dealers exempt from full lending laws and putting a cap on car retailers’ add-on insurance.
People’s Choice Credit Union spokesman Stuart Symons said these would make it easier for consumers to make better car financing decisions.
“Car dealers have long offered what seem to be amazing deals: loans as low as 0 per cent, signed off before you drive away,” he said. “In the worst cases, you only find out about the monthly administration fees and the lack of statements or customer support when you’re trying to understand the huge difference in cost.”
1200 PAGES INTO 99 WORDS
Haven’t got time go through Commissioner Hayne ‘s entire 76 recommendations and 1200-pages final report? Here’s our super-short overview.
- Borrowers, not lenders, will pay mortgage brokers’ fees.
- You’ll only have one default super account.
- Hard-selling and cold calling for super and insurance will stop.
- Advice fees can’t be deducted from many super accounts.
- Fees paid to financial advisers must be agreed annually, and in writing.
- Life insurance commissions to be reduced, eventually to zero.
- Funeral insurance and car dealer finance to be subject to consumer protection laws.
- Dishonour fees on basic bank accounts to be banned.
- Regulators and watchdogs get beefed up.
- Criminal charges loom for some financial institution bosses.
- Both sides of politics support the recommendations.