The Royal Commission into the finance industry has been a ripper but its plans for mortgage brokers is crazy and partly proves what a major law firm said about Ken Haynes — he’s good at the law but he might not be an expert of “community expectations”!
Commissioner Haynes has done a great job weeding out the problems in the finance industry that the greats of Australian politics have ignored — and that includes Paul Keating, Peter Costello, John Howard, Tony Abbott and even the one time Minister for Super and the Finance Industry, Bill Shorten!
Problems deep and wide
One Labor pollie who can be proud of his work was Bernie Ripoll, who introduced the changes to financial planning called FOFA (or the Future of Financial Planning) that banned commissions and forced the advice industry to be more transparent. But as the Royal Commission has shown, the problems were deeper and wider than governments and public servants could imagine.
It’s also possible that a lot of politicians treated the finance industry a bit like the mafia – they knew they were doing wrong, but who wants to stick their neck out to eradicate these nefarious ways?
As if they didn’t know
Don’t kid yourselves when you see politicians pointing the finger at each other, as if they didn’t know what was going on.
When I started my no-commissions financial planning business, I knew planners were accepting under the table commissions and recommending products because they were linked to certain financial institutions. They got kickbacks, overseas holidays/conferences, etc. and conflicts of interest were rife.
“If I have a million dollar loan and a broker takes my interest rate down from 5 per cent to 4 per cent, he or she would be saving me $10,000 a year on an interest only loan – if the broker gets $1,500 or 0.15 per cent trail of that, I don’t care.”
Why has it taken so long?
Not wanting to damage my brand, we rebated commissions and charged flat dollar fees but insurance companies made it nearly impossible for us to do a simple rebate of the commission, which in some cases could have been 120 per cent of the first year’s premium.
I learnt about this in week one of operating, so I don’t know why it has taken politicians and an expensive Royal Commission to find out what was going on.
Mortgage brokers taking a king hit
On mortgage broking, an AFR journalist highlighted a possible flaw in Ken Hayne’s background.
The crusade against this mortgage brokers by Hayne and his RC team suggests that Michelle Levy is on the money when she implied that Hayne (who is a law expert) might not be as much of an expert of us as normal Aussies.
When it comes to mortgage brokers, I think Hayne has missed the point.
He wants trailing commissions, which are 0.15 per cent of the loan for the life of the loan, to be banned.
He says this is “money for nothing” but has he really thought it through?
I’ve used mortgage brokers before and they would often get me loans cheaper than I could at the branch of a bank, and with much better service.
They can do the legwork for tricky loans when normal lenders say no and they can suggest you can refinance your loan to a lower rate – no one really cares what mortgage brokers are getting paid when they’re being offered a 5 per cent bank branch loan versus a 3.89 per cent bank loan via a broker.
Undoubtedly, some brokers have done the wrong thing, so get a serious investigation process and deregister them.
“Don’t make brokers charge fees upfront that first homebuyers won’t be able to pay or fees that most of us don’t want to pay. Aussies aren’t great at paying upfront fees for advice.”
But don’t make brokers charge fees upfront that first homebuyers won’t be able to pay or fees that most of us don’t want to pay. Aussies aren’t great at paying upfront fees for advice.
This decision will force us back to the banks and it means it should be great for bank share prices!
If I have a million dollar loan and a broker takes my interest rate down from 5 per cent to 4 per cent, he or she would be saving me $10,000 a year on an interest only loan – if the broker gets $1,500 or 0.15 per cent trail of that, I don’t care.
The biggest mistake highlighted by this Royal Commission has been the failure of governments, politicians and regulators to make people in the finance industry behave properly.
The punished factor and the consumer investigating processes and the penalisation of bad eggs is what is needed going forward.
If that doesn’t happen, the bad eggs will eventually resurface and consumers will be exploited again.
The Coalition is bound to tweak this mortgage broker recommendation but I hope our next most likely leaders — Bill Shorten and Chis Bowen — show that they can think outside their usual square.
There are 20,000 small business mortgage brokers and about 150,000 employees working in the sector hoping that a better idea for their industry’s reform is out there and it will be conceived by leaders who are actually in touch with community expectations.
Go Bill & Chris!
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