WHAT THE ROYAL COMMISSION REPORT MEANS FOR YOU
More than 1000 pages and 76 recommendations – the Royal Commission final report doesn’t exactly make for light reading. Fortunately, we’ve cut to the chase with the key recommendations and how they’ll affect you.
Below we’ve outlined the biggest changes recommended by the Honourable Kenneth Madison Hayne AC QC in the banking and finance Royal Commission’s final report.
Keep in mind that these are only recommendations – the government of the day will still need to pass them, most likely after a May federal election.
1. If you want to buy property
Perhaps the biggest recommendation from the report is to ban trail commissions for mortgage brokers on all new loans by July 1st 2020.
Mr Hayne has recommended switching to a consumer-pays model whereby borrowers foot the bill – not the banks.
The thing is, mortgage brokers have historically created a lot more competition within the industry by bringing ‘second tier’ lenders into the frame.
However, if customers are forced to pay a $2000 fee to engage the services of a mortgage broker, 96.5% of people say they won’t use them. That’s according to independent researchcited by the MFAA.
Instead, people will head into their local bank branch – most likely a Big Four – for a loan.
Now, call us cynical, but what may happen over time is that banks start to increase mortgage rates because there is less competition.
2. If you take out insurance
In total, there were 15 recommendations relating to the insurance sector – many of which will hinge on a review by ASIC in 2022.
Mr Hayne has suggested that grandfathered commissions on all financial products should be scrapped and that commissions relating to life insurance should be reduced before being completely eliminated following the 2022 review.
If this were to occur, a scenario may play out similar to the mortgage broker example above – there will likely be fewer financial advisers offering services in this space and competition may be reduced.
It could also see more people rely on insurance from their superannuation fund, even though many of these policies are full of exclusions, poor definitions and poor claims handling.
There were, however, some positive recommendations when it came to insurance.
For instance, Mr Hayne has recommended replacing “the duty of disclosure with a duty to take reasonable care not to make a misrepresentation”.
In a nutshell that means the onus will be on insurance companies to get all relevant information from you when they’re selling insurance, instead of later penalising you if you forgot to mention something you didn’t think was all too important.
3. Your Superannuation
Mr Hayne has recommended that each person should have only one default superannuation account.
“Because some employees, especially those who are young and working part-time, do not make informed choices about their superannuation arrangements, default arrangements are essential,” he wrote.
Mr Hayne also recommends banning advice fees from MySuper accounts and limiting deduction of advice fees from choice accounts.
He also recommended “no hawking” when it comes superannuation accounts (as he did with insurance products too).
“Superannuation is not a product to be sold. It is a compulsory product,” he wrote.
Despite 61% of submissions to the Royal Commission relating to the banking sector, as you can see, many recommendations will affect the mortgage, insurance, superannuation and financial advice industries.
If you want to find out more about any of the above, don’t hesitate to get in touch. We’d be more than happy to talk you through it.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice or a recommendation and may not be relevant to your situation or circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.