With Commissioner Haynes findings released to the public on Monday, we can’t help but feel there is long road to travel before a meaningful proportion of Australians seeking advice are rewarded with the truly independent financial advice they deserve.
Hayne presented 76 recommendations and it seems like those firmly in his firing line were mortgage brokers rather than “the big banks”. In fact, some analysts called it a “clear win for the banks”, with their share prices surging as much as 7% or so immediately in response to the report. Clearly, the market’s reaction was indicating the banks got off lightly.
Regarding mortgage brokers, we think Hayne may have missed the mark. He thinks trailing fees on mortgages paid to brokers is “money for nothing”. We disagree. A good broker will compare the market, deal with the complexity of paperwork and applications and they should seek to get you the best rate possible. This is clearly a service that often involves lots of work. It also comes at a cost, which we feel most people would prefer not to pay up front.
If I am with bank A paying 4.6% (that is probably offering 3.9% to new customers only) and my broker achieves a rate of 3.7% with bank B, saving me $4,500 per annum on a $500,000 loan, do I really care if my broker gets paid a modest trailing fee from bank B?
Of course, there are some rouge mortgage brokers that have fudged paperwork and behaved badly. We suggest Hayne should have instead focused on measures to rid the industry of bad individuals and practices rather than target them as a group.
Hayne also quoted several issues facing the financial planning industry. One prominent issue being “…poor advice – which, too often, is the result of the conflicts of interest that continue to characterise the financial advice industry.”
This reminds us of Storm Financial, its severe conflicts of interest and the destruction of wealth and pride that followed for hundreds of battlers. Remember Storm? Here is storm in brief:
- Templated advice, recommending 90% of its clients take out expensive margin loans
- $77 million in revenue in 2008
- Hundreds of Australians lost their life savings & homes unnecessarily following the GFC
- ASIC estimated the total loss suffered was about $830 million.
Of the 76 recommendations handed down, these interested us the most:
- No commissions – the report recommends that mortgage brokers should not be allowed to accept trailing commissions from banks. The customer (borrower) should pay directly and upfront for the service. We don’t agree with this one! Sorry Ken.
- Brokers as advisors – brokers will be subject to the same regulation and laws as financial planners in terms of education and training standards. We agree with raising standards of education where possible.
- Independent financial advice – advisers are required to provide a written disclosure statement to clients warning of a lack of independence. This will not be a problem for us as no such warning statement will be required.
- Grandfathered Commissions – existing grandfathering commission arrangements to be repealed ‘as soon as is reasonably practicable’. We totally agree with this as we are already 100% free of such grandfathered commissions.
- Ongoing Fee Arrangements – annual fee arrangements must be renewed annually and record in writing each year what the client will be charged. We agree and we do this already.
There was a noticeable lack of recommendations towards the banking industry, with most of the changes proposed either minor changes to legislative code or the improvement of monitoring bodies. We struggle to see how this will result in material structural or cultural change (for the positive) for banks and how they provide advice.
We take pride in the fact that we will not have to change our service offering or even introduce new practices and policies at all as a result of the RC findings and recommendations.
We are, already, A Truly Independent Financial Advisory!