Banking Royal Commission Reports & Government reponse

Could we see BS and ALP do a backflip on this RC recommendation?

Either way it will be an embarrassment for them !!!

 

I don't believe there will be any backflips pre-election. Imagine if the goose had to backtrack on agreeing to implement all 76 recommendations.

Post election though I think we will see a more measured approach. The number of media publications showing that it's the big 4 that will benefit from broker remuneration changes are growing daily.

 

Yeah Shorten will then have Treasury, ACCC and ASIC etc all giving advice. The silence of the ACCC at present is deafening regarding the competition concerns and impacts on consumers.

Morrison has suggested a concern. Its a easy one to backflip on. Blame good advice.

 

probably the whole thing was a set up. i.e end result was already decided in the boardroom, they just found the way to execute it.

 

Another mystery is why the Commissioner seems so impressed with the Netherlands model, considering what's happened to concentration of the banking sector over there:

Topic: Banking in the Netherlands

The Netherlands Model for Mortgages

 

Hayne is as big of a criminal as Comyn. Hayne should be investigated

 

The article is a bit skewed and misleading. It is written by a mortgage broker organisation. I will soon post a more balanced and independent review of ALL European banking markets that shows that bank branches are being removed. This is less about competition and markets but about electronic banking. Looking at branch closures are arguing its because there is less competiton isnt correct.

The report also provides a good summary of different broker models across Europe that supports the need for brokers as consumer representatives.

https://www.oliverwyman.com/content...archive/2011/european_mortg_dist_RBB_0307.pdf

Section 5 contains the obvious bit Hayne missed:

With the number of contract parties involved, the number of pricing models increases as well. For the indirect distribution model, three main pricing models can be distinguished:
1. Lender pays a fee to the intermediary, no consumer commission is paid
2. Lender pays a fee and consumer pays commission
3. Lender pays a fee and consumer pays commission with ‘rebasing’, i.e. a part of the lender fee payment is passed through to consumer once the loan closes

But Hayne just ignored other options. This report is freely available from 2011 and on the net.

And Hayne never once refers to the consumer. Only lenders and brokers.

 

It's not just about branch closures. The number of banks went form over 90 to about 44 in the same period. That certainly does suggest less competition.

That said, the Netherlands model is an inefficient one for a simple reason. The high cost to the consumer of a new loans means that people will be reluctant to refinance. They won't want to switch banks for a better deal.

I can live with telling people they'll recover the cost of moving in a 6-8 month period. I can't advocate people recovering that cost over a 2-4 year period. This model effectively locks people into their mortgage even if it's a lousy one.

I don't believe capitalising the costs is reasonable either. If you consider the interest over the life of the loan, it doubles or triples to real cost of that fee. In some cases it means that peoples mortgages might increase over time, not be paid off. I don't believe this model represents a good customer outcome.

 

There’s no room to cap any further fees for FHBs. The ones that do have a little more room, or deposit will see that $5k fee turn into the same amount of increased LMI.

Banks aren’t going to pass on any interest rate savings to FHBs at 95%.

 

From the Age: https://www.theage.com.au/business/markets/markets-live-appen-drops-8pc-20190312-h1c9sz.html

"The federal government has backflipped on a key recommendation of the banking royal commission and will no longer ban trail commissions for mortgage brokers from 2020, as it promised to do last month.

Instead, it will hold a review into whether trail commissions should be kept from 2020 onwards. The review will be conducted by the Australian Competition and Consumer Commission and the Council on Federal Financial Relations, which comprises the federal and state treasurers. Treasurer Josh Frydenberg announced the backdown after intense lobbying by the mortgage broker industry and the smaller lenders.

"After consultation with the mortgage broking sector as well as small lenders, the government has decided that the trailing commission issue will now be the subject of the review by the ACCC and the Council on Federal Financial Relations in three years' time," Mr Frydenberg said."

 

Must be a strong public message being heard by both sides of government! Completely different positions now for both parties compared to immediately after the report was released!

Leave commissions as is (upfront + trail) or a larger upfront. What is better for consumers?

 

My planner was telling me that insurance sector is moving towards larger trails and less upfront that way they are less inclined to churn policies - not sure if it'll work.

I have absolutely no issue for my broker to get larger upfront commissions and trail but the problem is the brokers on PC are not representative of the average broker out there. I've come across many that couldn't care less and just wanted to push the deal through and move on. Like any profession there are good and bad ones but they both are getting the same reward, which is unfair. Other than this rant, I don't have a practical solution to offer though.

 

Dont think so, the insurance FP model is moving to "fee for service" rather than comm only. When and if you seek insurance your planner can present you with two options:
1. Fee for service
2. Commission only

In 1 - they will charge you a fee based on time spent to issue advice to you including a needs assessment plus SOA - similar to a SOA for SMSF, this will include the application for insurance.

In 2 - this may or may not be more expense and will disclose the premium and commission earned by the planner - this will be much less than what it used to be.

In 1 - you are paying for a service and most likely this will be a different premium as no commission is paid by the insurer to the broker, in 2 you are paying nothing and the planner is earning a comm.....

Most customers will not want to pay a fee to the planner for insurance unless there is a meaurable saving....i.e in 1 premium is much cheaper as no comm v 2 where insurer is paying a comm.

Compare that to MB. There generally is NO difference between the rate achieved by the bank and the broker. The difference is that the broker will issue credit advice to you whereas the branch will not. The broker will structure your loan and consider your personal circumstances whereas the branch most likely will not - you will not get a offset at a branch unless you ask for it, a broker will insist and structure your deal accordingly.

The value of the broker is clear in the upfront world. If there is a question about "trail" = structure it like "opt in" or "FDS" each year the broker should complete a questionnaire to determine if your personal situation has changed. For example, a FP must complete an ongoing review and evidence it by considering your PF and see if any changes are required, same can apply to MB. Sumit a fact find to the client and ensure they reply, evidence your review of their finance to ensure its still appropriate, if not, communicate with the client. FP world is saying your charging a fee, evidence your service, for a MB, i'm hapy to evidence ongoing review as all my loans are "existing" clients where I look at their PF, meet with them etc, its just a matter of documenting meeting notes.

I'm ok with the above......lets see where it lands.

Cheers Ivan

 

Just not true, it's so much simpler for offset to be open in the branch. The number of times we have clients coming in because the broker hasn't setup the offset months later and need to backdate the interest with no recourse for the broker.

 

I think a lot of people are forgetting that trail is deferred upfront. Larger upfronts were originally in place yet were changed by the banks to be split between a smaller upfront and trail to encourage 'good consumer outcomes'. I.e. A smaller upfront cost to the bank.

There is no obligation for a broker to provide ongoing service post settlement. It is however good business practice.

I agree that there are ordinary brokers as well as ordinary bankers. I've also experienced cases of having the offset option ticked on an application form for the processing team not to do it.

 

Agreed......and that there is the problem with leaving politicians and lawyers to make sweeping changes to industries they think they know a lot about - but in reality know very little.

Every form of remuneration is flawed to some degree. Is it in the obese, diabetic's best interest to be upsold a large meal at McDonald's? Definitely not but it happens everyday. Is it in the best interest of a young family to be sold a higher model car costing an extra $5,000 with leather seats and a better stereo rather than the entry level one? Who knows but it happens everyday.

In the end businesses sell products and services to make an income. As long as they are being honest and truthful in their dealings, then it is up to the consumer to decide whether it is in their best interests to go ahead with the transaction.