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News · March 6, 2019

Royal Commission Key Recommendations & Our Thoughts

Royal Commission Recommendations

Commissioner Kenneth Hayne has released the final report to last year’s 68 days of hearing where the banking, superannuation and financial services sector came under the spotlight for misconduct.

Hayne’s final report included 76 recommendations, most of which the Morrison government and Labor say they will support and implement.

Here are some of the key recommendations.

Mortgage Brokers

The report recommended that mortgage brokers face a civil penalty if they do not act in the best interests of the borrower. Hayne says mortgage brokers should be subjected to the same regulations as financial advisers, given consumers go to a mortgage broker for advice relating to home loans.

Loan trail commissions and lenders paying commissions to brokers altogether was recommended to be banned which the Morrison government is now hesitant to do for fear the sector could ‘wither on the vine’.

Our Take?

If all commissions cease and borrowers have to pay a mortgage broker several thousand dollars to get a home loan, this proposal could decimate the mortgage broking industry and send borrowers back to the banks directly. I don’t think this helps borrowers, though it sure would help the banks.

Fees for No Service

Arguably the area of most focus was charging fees to customers who did not receive any of the services they were being charged for (in some cases, this was because the account holder had died – oh dear?!). The report recommended regulators consider criminal charges against those who charged for services and knowingly/willingly failed to provide these.

It also estimated the compensation from wealth managers and major banks to be around $850 million.

Our Take?

If you are paying a financial adviser a fee for a service you ought to receive the service you are paying for.

Superannuation

Haynes recommended that deduction of any advice fees from MySuper accounts should be prohibited, as well as the unsolicited selling of superannuation products.

ASIC (Australian Securities & Investments Commission) should be the primary regulator for overseeing conduct in superannuation.

New measures should be introduced to ensure superannuation fund members only have one default account.

Our Take?

Compulsory superannuation has been too complicated for too long and a single default account with a universal identifier (e.g. BSB and account number) would make things a lot simpler for workers and employers.

Insurance

The report recommended that hawking of insurance products should be banned and that insurance commissions should cease.

Funeral policies should be categorised as a ‘financial product’, rather than be exempt. Carving them out of the regulatory framework of being a financial product means they are not bound by the same legal obligations and supervision.

Our Take?

If insurance commissions are banned, will the cost of the insurance reduce or will the insurer just keep that amount they used to pay to advisers? Again, I am not sure how the clients are better off unless their premiums actually reduce (which doesn’t tend to happen very often in my experience).

Regulators

One of the most disappointing revelations of the royal commission was regulatory groups’ failure to punish misconduct when it was found.

The report recommends ASIC and APRA (Australian Prudential Regulation Authority) remain the ‘twin peaks’ of financial regulation but for their roles to be divided more clearly.

Commissioner Hayne urged ASIC to take greater action with large corporations when they breached the law, rather than issuing infringement notices.

Furthermore, it was also recommended that another authority be introduced to oversee the effectiveness of ASIC and APRA.

Our Take?

It seems that ASIC fell short of what society would expect from a financial services regulator, yet no real changes are proposed. Not sure how the commissioner came to this view.

 

The timing in the release of the report and its recommendations follow closely to the election in May and is definitely a drawcard if voters believe the government will commit to what they say they will.

 

What Can Align Financial Do For You? Visit our homepage to learn more about our service. If you would like to speak to us about your financial circumstance, please feel free to give us a call on 02 9913 9995. We are located in Narrabeen on the Northern Beaches of Sydney.


Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online.

Filed Under: News Tagged With: financial advice, financial planning, mortgage, regulation, royal commission, superannuation

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