The Royal Commission Simplified

It has been the time many were waiting for – the Royal Commission report to be released to the public punishing the ‘big 4’ banks for the terrible behaviour and horrible acts they’ve been committing for years. You may recall some of the headlines – continuing to charge fees to deceased clients, inappropriate selling of income protection insurance policies, fabricating ‘independent’ reports and of course, lying to the financial regulators. The commonly held expectation was for the report to not only hold the banks accounting for this despicable behaviour, but to provide recommendations and insights that would lead to REAL change in the industry. Sadly, it was a complete anticlimax.

The recommendations contained within the Royal Commission report and list of 76 recommendations were anything but detrimental to any of the ‘big 4’, instead singling out mortgage brokers to bear the brunt of the recommendations. If you need any proof about how little the banks were impacted, you need not look any further than their share price over the past week with the big 4 bank stocks rallying between 5 – 10%, while mortgage aggregators such as AFG, were sent plummeting.

Before we get into the recommendations contained within the report, and the potential impact for borrowers, we would like to highlight our support for mortgage brokers. They are the ones sifting through lending options and strategies for their clients, liaising with the lenders and ensuring that financing strategies remain aligned to their client’s financial goals. The industry has hit back at the recommendations and you can show your support, as I have done, for the industry by signing the petition at –

Let’s get into the recommendations

The recommendations for the financial planning sector were largely as expected and no sweeping changes were announced. The key recommendations for the mortgage broking and financial services sector, as a result of the Royal Commission report are as follows:

1.Mortgage brokers must act in the best interests of their clients

I find it difficult to argue with this one and great mortgage brokers are already doing this anyway. This will be a valuable step forward in enhancing the reputation of mortgage brokers and the industry as a whole.

2. Trail commission on loans should be removed by 2020 and upfront commission removed in 2 – 3 years’ time

I personally feel that this is a classic case of the Commission failing to recognise the value that mortgage brokers add to borrowers here. Great mortgage brokers are reviewing their clients’ loans and financing strategies on a regular basis, so I feel that a shortened trail commission period would have been a far more sensible option. There is no doubt that a bad few are not servicing their clients properly and that this should change, however don’t believe that this is the only way or even a sensible way to fix this.

3. Borrowers should pay mortgage brokers a fee instead of the banks paying commission

This is a case of switching to a consumer pays model, and if this is legislated it will likely result in consumers paying in more than once. Consumers would be faced with an option of paying a mortgage broker a fee to source and recommend a financing strategy for them or sit on the phone with the outsourced ‘big 4’ customer service team to establish a new loan for ‘free’.

4. Grandfathered commissions on insurance products to be abolished

Currently, many financial advisers in Australia are paid grandfathered commissions for insurance policies sold. Many commissions are banned in Australia, however not all of them and Hayne has recommended that they be completely removed, or at least limited. ASIC will be reviewing this in 2022 and providing their recommendations regarding commissions on life insurance products. Depending on this review, this may increase the average cost of financial advice for many Australians.

It’s important to note at this stage that these are just recommendations. Our current Treasurer does not agree with the ‘consumer pays’ model, however it’s looking less and less likely that he’ll be our Treasurer by the end of the year. It will therefore be up to the Government to decide which recommendations are actually implemented, and which are rejected. The industry groups have raised over $2 million to fight these changes so we will be watching this closely.

Finally, as an important point to note and to stop the spread of misinformation – one of the more popular breakfast programs in Australia announced last week that fees to mortgage brokers would become payable immediately and that this change was now in place – please disregard this and correct anybody who mentions it. The last thing we need misinformation like this spreading particularly when the outcomes are uncertain enough.

To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3

Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.

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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.

*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.

Jarrad Brown is the trusted fee-based financial adviser in Singapore working with professional expats in the region. An Australian qualified and experienced Financial Adviser, Jarrad provides specialist advice to Australian expats as well as other nationalities.

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