The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down its report on 4th February, and while there was much speculation about tighter lending criteria that didn’t quite come to pass, there are some recommendations that will have an impact on consumers.
With a long parliamentary process to go through, which may be further protracted by the upcoming Federal Election, it’s unlikely that we will see any changes before 1 July 2020, but it’s important to get a handle on the changes early and understand what they could mean for you.
For me, I see four main areas you should be across when it comes to your financial plans.
Removal of mortgage broking commissions
The Commission recommended removing mortgage broker commissions, meaning brokers will no longer receive incentives from financial institutions in return for a customer’s business. On the surface this certainly sounds like a win for the customer, and in many ways it is. It will certainly decrease the likelihood that an unscrupulous provider will recommend a product for their own financial gain, but on the flipside, it will change the broking industry to a ‘user pays’ system.
Broking services have a number of benefits, not least of which is providing the customer with access to a range of products from different institutions, but we are yet to see whether customers will pay for this service. If they won’t, there is a risk that more people will choose their own bank for their loan because it is more convenient than shopping around; reducing competition and potentially giving more control back to the big four banks.
Changes to insurance practices
A number of changes have been recommended for the insurance industry too. The Commission recommended that the insurance industry be added to existing ‘Anti-hawking’ laws. Essentially, this means that insurers will no longer be able contact you directly to sell insurance. This, in my mind, is a good thing.
Insurance decisions should be made as part of your broader financial plan, that takes into account your circumstances. They are much better made with the expert advice of someone who understands your situation and goals than over the phone with a specific provider whose agenda is to sell policies.
In recent years, there has been a standardisation of the commission structure in the industry. The Commission supported the already scheduled review by the Australian Securities and Investments Commission (ASIC) in 2022. This gives regulators some time to continue working on outcomes that avoid an increase in underinsurance, which isn’t great for the broader economy. According to research by Rice Warner, 16 million Australians are already underinsured.
Default superannuation funds
Many Australians have multiple super funds, often as a result of changing jobs, and this means they are not making the most of their super, losing more to account fees than they would with a consolidated fund. The Commission has recommended that each person have a single default superannuation account and that a new account only be set up for those employees who don’t have an existing super fund.
Changes to Financial Planning Services
There are proposed changes to the financial planning industry that I think will prove a win for consumers too. The Commission’s recommendations are aimed at ensuring financial planners engage with their clients on an ongoing basis and receive a fee for delivering that service. The Commission also recommended the ceasing of ‘grandfathered commissions’, which Apt advisers do not receive.
Apt has been engaging with clients on a fee-for-service basis and delivering ongoing service for many years, so there won’t be any change for our clients. For some others, it may change the way they operate, but at the end of the day it should give clients more trust in the services their planner provides – and this is, ultimately, key to a successful relationship with your planner.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.