After 69 days of collecting evidence and over 10,000 public subcommissions, the Royal Commission into Banking released its report recently.
The main goal of the commission was to expose the dodgy practices and wrongdoings of financial institutions and banks in Australia.
There is going to be massive changes in the financial industry – assuming the Australian government heeds the advice of the commissioner Kenneth Hayne.
These wide-ranging reforms are going to impact everyone at some level. This article provides information on how the Royal Commission into banking practices impact you.
What Recommendations Were Made?
The report of the Royal Commission into Banking practices in Australia contains over 72 recommendations for implementation. These recommendations are wide-ranging.
However, they are designed to guide the behaviours of banks and financial institutions in Australia. Mortgage brokers are the most affected by these recommendations.
Mortgage brokers currently get their commissions from the banks and not the consumers they serve. Hence, their loyalties are with the banks.
How can a consumer expect sound financial advice from them when they are bound to serve their masters – the banks?
The Commission proposes to change this practice and recommends that the consumer pay the commission to the broker and not the bank.
They expect better consumer-oriented services from mortgage brokers with such changes.
There are massive gaps in the way mortgage brokers currently operate.
Changing The Rules
If you plan to buy a house and enlist the services of a mortgage broker, there are no rules to say the broker should act with your interest in mind.
The broker is currently protecting the interests of the bank since they are paid by the banks. The commission wants to change the way mortgage brokers operate.
They recommend implementing certain rules to get the broker to have the interests of the consumer in mind. This is an important change if it could be implemented properly.
With consumers having to pay the broker commission when applying for a mortgage loan through a broker, more consumers will ditch the middleman and approach the bank directly.
Mortgage brokers may lose a lot of business because of this. Banks may have to hire new staff to deal with the increase in loan applications.
A mortgage broker gets a bigger commission from the bank when they sell bigger loans to consumers.
Hence, they will entice the consumer to go for a bigger loan to get a better commission from the bank.
However, banks don’t have to do the same thing. Hence, consumer loans will become smaller once the consumer approaches the bank directly.
Superannuation Industry Also Under Scrutiny
The commission has also given a lot of attention to the superannuation industry.
A number of big providers like the Commonwealth Bank, Suncorp, IOOF, and NAB will be referred to regulators to see whether civil or criminal proceedings should be instigated against them for dodgy practices.
If you have super with one of these institutions, you should check your statements and the fees paid to them.
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