Experts weigh in on how the report will affect you

How does the royal commission affect older Australians and retirees?

How will the report affect you?

The royal commission report delivered yesterday contained 76 recommendations aimed at cleaning up a stained sector in need of cleansing, but did it go far enough to address the white-collar crimes inflicted upon thousands of victims?

The answer is no, or maybe, or wait and see.

While Kenneth Hayne’s report points out the underlying long-term greed inherent in the banking and financial system, there are concerns it does little in the way of making a difference in the short term.

Sure, the 76 recommendations, most of which may be implemented if you believe Treasurer Josh Frydenberg, may do some good, but with a federal election looming and just 10 sitting days, we may not see any changes for at least 12 months.

There’s a prevailing sentiment that the big banks will make out like bandits – again – escaping direct criminal prosecution which has been palmed off on to the organisations that allowed this misbehaviour to occur in the first place. They’ll also be the beneficiaries of potential savings should trailing commissions for brokers be banned, and may even have their smudged records wiped clean, allowing them to start over instead of paying the price for their misdeeds. 

So, who else wins from this report? How does the royal commission affect older Australians and retirees? How long will you have to wait before you see any benefit from the royal commission? Will this report have a positive impact on your hip pocket? We’ve asked three industry experts for their opinion.

 

Matt Grudnoff is a senior economist at The Australia Institute, has previously worked for the Australian Bureau of Statistics and the Department of Climate Change and Energy Efficiency, and works with YourLifeChoices on the quarterly Retirement Affordability Index™.

We need to be very careful about giving the banking system a free pass for bad behaviour because we’re worried that enforcing the law will upset the banking sector and that will in turn throttle the flow of credit. The royal commission has shown us that you can’t buy stability by turning a blind eye. We need a rules-based system which everyone in the banking sector has to abide by. That is how you maintain long term stability.

The problem at the very heart of the financial sector is the market power of the big four banks. They have grown too large and too powerful. The big four banks in Australia are all in the top eight most profitable banks in the world. Their behaviour is simply a response to this power. Economics 101 says that lazy oligopolies will take advantage of customers in order to maximise profits. If we really want to reform the banking sector to ensure that what the royal commission has uncovered will never happen again, then we need to reduce the market power of the banks. The only realistic way to do this is by reducing their size. We need to break up the big four into a larger number of smaller banks. This will create real competition in the sector.

 

Graham Hand is the managing editor of the leading financial newsletter, Cuffelinks. Graham writes regularly on investing for YourLifeChoices.

The royal commission’s work will lead to few immediate changes for retirees, despite the final report acceptance in full by both major political parties. It’s not recommending changes to tax rates, social security payments or eligibilities that would hit the hip pocket quickly.

Change will be more gradual. Commissioner Kenneth Hayne believes banks have put profit before customers, and he appeals to their ‘culture’ to address priorities. This relies on action from boards and senior management in the day-to-day decisions affecting customers and is where doubt arises.

For example, when the bank pricing committee sits down to decide whether to make a rate increase on mortgages, will it put the customer before profit and shareholders in the competition between stakeholders? It’s unlikely much will change there.

Hayne prescribes little about executive remuneration, and while the shareholder backlash should create some salary moderation, don’t expect any zeros to be knocked off the handsome packages.

Over the coming year, however, there is no doubt the regulators will feel empowered to take firmer action against misconduct, and retirees who feel they have been mistreated by a financial institution will have better forums for redress. It’s likely that banks themselves will solve problems quicker and not want the glare of publicity which has caused so much pain during the commission.

The ways retirees access loans from mortgage brokers or obtain financial advice will also change, although with implementation dates pushed into 2020 and 2021. Hayne wants payments to mortgage brokers to come from borrowers, not banks, while investors should pay for advice rather than the product provider offering the adviser a commission. Many retirees probably prefer to avoid these direct costs.

 

Erin Turner – CHOICE Director of Campaigns and Communications
This report is good news for retirees and all others seeking financial advice. It seeks to clean up loopholes in the law so that consumers can expect financial advisors can be trusted with their money.

There has been a lot of reform suggested for the financial advice sector in recent years, but an awful lot of ‘carve-outs’ heavily lobbied for by the industry.

Consumers should be able to trust that their advisors are just working in their best interests.

Will this now actually happen?

Hopefully. There are clear and strong recommendations about financial advice. Until now many such reforms have been watered down. But this report contains recommendations that could be quickly and effectively implement, for instance the grandfathering of commissions in the financial advice sector, including life insurance products. Many retirees will actually still be paying these commissions. A new body with oversight for all financial planners may take longer. But it’s worth noting that Commissioner Hayne has allowed three years for the roll-out of many of his suggestions, with a further recommendation of an independent review of financial advice in three years’ time.

How will the royal commission report recommendations affect you? Do you expect any benefit from the commission’s findings?

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    COMMENTS

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    5th Feb 2019
    11:06am
    Yes its an outstanding report
    Retirees are already benefitting from a surge in banking share prices.

    Very pleased with Kenneth Hayne. Well done !!!
    Anonymous
    5th Feb 2019
    11:41am
    Share prices need to recover! But I fear a Labor Govt will force them down again.
    Greg
    5th Feb 2019
    11:47am
    OGR - I wonder how that would be so?
    Old Geezer
    5th Feb 2019
    11:53am
    Yes it was a good report and I really can't see much changing other than people will finally have to take responsibility for their own greed and stop blaming the banks.


    I hope you bought some extra bank shares at bargain prices and are not cashing them in.
    Anonymous
    5th Feb 2019
    11:55am
    All good Old Geezer . Made $30k today from buying CBA under $70 and NAB under $24.
    Might cash in some when CBA hits $90 and NAB $30
    Old Geezer
    5th Feb 2019
    12:07pm
    I just love the way WBC and AMP bounced today too. I think I am going to end this financial year with a great result.
    Old Geezer
    5th Feb 2019
    12:22pm
    I just love the way every time the price of bank shares falls there is a new wave of buying.
    Old Geezer
    5th Feb 2019
    1:16pm
    Financials index up 4.8% today.
    Rae
    5th Feb 2019
    3:58pm
    Yes the banks are great for shareholders. Customers not so great. Lesson. Don't be a bank customer. Simple.
    Not a Bludger
    5th Feb 2019
    4:37pm
    Well said, Lothario - and most of the commentary above is from rent seeking “C” grade economists - where on earth does YLC find such people.
    Adrianus
    5th Feb 2019
    11:36am
    Well I certainly don't agree with Matt Grudnoff's opinion, that we should make our banks weaker so that we have more control over them?? So that who has more control over them??
    In my opinion we need to investigate why ASIC, APRA and the RBA did not do their job? If we no longer want the banks to have the culture which was set on its path by Paul Keating then make those changes in Hayne's report and change the culture. No need to break them. We need to fix them.
    Sundays
    5th Feb 2019
    12:12pm
    I agree when the CEO of Nab says that charging fees to customers without providing any service wasn’t dishonest, just sloppy, you know the culture needs to change.They took $100M in these fees!
    Arvo
    5th Feb 2019
    12:23pm
    Perhaps, he meant by stating "sloppy" is that he thinks the banks should have made at least half-a billion out of dishonest fees.
    SFR
    5th Feb 2019
    8:03pm
    Being sloppy is just another term of being caught in a criminal act. They where slopping by not covering it up more by being complacent with the full protection of Turnbull, Morrison & co.

    5th Feb 2019
    11:40am
    Greg Canavan commented:
    "All you need to know is that beyond curbing bad behaviour for a few years — out of shame and fear of being caught — the royal commission won’t do anything to change the culture of the industry."
    in an article aptly titled "You can't regulate morality''.

    Unfortunately for some, that's true and says it all. And in this modern world of greed and self-interest, there seems to be less and less focus on morality, ethics and integrity and more and more focus on profit and personal gain. It's not likely to change any time soon!
    Old Geezer
    5th Feb 2019
    11:54am
    So all that will change is that people will have to take responsibility for their own greed instead of using the bank as a scrape goat.
    SFR
    5th Feb 2019
    8:04pm
    How where people greedy OG, because they invested their money etc or took out loans in good faith then the banks changed the terms on them.
    Adrianus
    6th Feb 2019
    1:36pm
    Rainey, I don't share the views eluded to in Canavan's comment. Hayne has identified a few things which drive a culture of aggressive behaviour which if changed will provide a different outcome given time. What we need to remind ourselves of is that Bank's began a change in culture almost 40 years ago. They will never return to that old culture but a new culture will take longer than 4 years to achieve. I pay thousands of dollars in building insurance every year and I know the broker gets a trailing commission to keep me on the books, but I never hear from them, because they are out chasing new business. But if I have a claim I expect a shop front which I have been paying for to handle it.
    If I take a mortgage through a broker I expect to pay him an upfront cost but why should the wholesale fund provider give him a trailing commission each year? Where is the value for me?
    Anonymous
    7th Feb 2019
    2:58pm
    Adrianus, I'm not suggesting there isn't room for reform and I think relevant authorities should take appropriate action to demand it, but it seems to me a lot of people think there should be some miracle cure effected. It's not going to happen. We all have to take personal responsibility, and we have to accept that we live in an environment where there are risks attached to taking insurance, loans, investing, and many other activities. The best we can hope for is responsible governance and encouragement of a respect for moral and ethical standards.

    What astonishes me is that the same people who are screaming for blood from bankers and blaming them for causing hurt SUPPORT Labor's cruel and unfair attack on self-funded retirees. Apparently it's okay for some to be ripped off, but not others - or is it okay for some to rip-off, but others are criminals if they commit the same wrongful acts?

    Our society relies on people engaging in enterprise, working, saving, and investing. How can anyone justify on the one hand screaming to make those activities safer for all by punishing bankers and insurance companies, and on the other demolishing the livelihood of working-class battlers by overtaxing them, for no better reason than they ARE working-class battlers who, though far from wealthy, have strived to be self-supporting in retirement?

    Very hypocritical views here.
    Adrianus
    7th Feb 2019
    10:07pm
    Agree, when I join the dots on all this it leads back to the Labor Party. I still want to know why the head of ASIC, who was a Labor Party member, employed by Julia Gillard, left 3 weeks before the start of the RC? The heads which are falling appear to have a connection to the Labor Party. And perhaps this is why Shorten and Bowen were reluctant to vote with the Greens motion on having a Financial Services RC. I think it got watered down to a Banking RC.
    Adrianus
    7th Feb 2019
    10:07pm
    Agree, when I join the dots on all this it leads back to the Labor Party. I still want to know why the head of ASIC, who was a Labor Party member, employed by Julia Gillard, left 3 weeks before the start of the RC? The heads which are falling appear to have a connection to the Labor Party. And perhaps this is why Shorten and Bowen were reluctant to vote with the Greens motion on having a Financial Services RC. I think it got watered down to a Banking RC.
    Dave R
    5th Feb 2019
    11:46am
    IMO the RC has left it to the regulators to start regulating and to lay any criminal charges. Both major parties are saying they will make the regulators do their job, but with an election so close not much is going to happen over the next few months but there will be plenty said. I don't think this is going away and I expect the big banks to take a hit later this year even though shareholders are breathing easy now. If you own bank shares and they are rising I would be taking the opportunity to sell.
    Old Geezer
    5th Feb 2019
    11:51am
    Thanks goodness that witch hunt is over and nothing will change. It was nothing but a big waste of taxpayers money.
    SFR
    5th Feb 2019
    11:59am
    Please explain why you consider it a witch hunt & a waste of taxpayers money
    Old Geezer
    5th Feb 2019
    12:05pm
    No need as I have said so all along and now I have been proved exactly right.
    SFR
    5th Feb 2019
    12:17pm
    You can't answer the question because your original statement was rubbish, you have been proven exactly wrong
    Old Geezer
    5th Feb 2019
    12:25pm
    They found no witches so in others words they found nothing wrong.
    SFR
    5th Feb 2019
    8:06pm
    Pity you, Lothario, Not a Bludger & Robbo weren't investigated. I would pay big money for a front row seat to watch you mongrel witches burn at the stake
    BERRYUPSET
    5th Feb 2019
    12:04pm
    Yes!Just finished reading it........magic reading..thorough and inciteful!Can`t wait for part 2!
    Old Geezer
    5th Feb 2019
    12:12pm
    Me neither as it can't [possibility be better than part 1.
    BERRYUPSET
    7th Feb 2019
    11:45pm
    Just be patient.............................it`ll be ideal bedtime reading!
    I`M EXCITED!!!!
    HKW
    5th Feb 2019
    3:05pm
    Local news outlet Fréttablaðið has calculated that in the past few years the Icelandic judiciary has sentenced 36 bankers to a total of 96 years in prison. All of the criminal cases are linked to the notorious crash of the Icelandic banking system in 2008.

    Eleven of those bankers, who are former employers of Kaupþing, were sentenced to total 35 years in prison, while other seven individuals from Glitnir HoldCo. were sentenced to 25 years. Former employers of Landsbankinn got 13 years in total.

    All of the bank directors were sentenced to jail. Heiðar Már Sigurðsson, former director of Kaupþing, got the heaviest sentence, or seven years in total. Instead, former director of Glitnir Lárus Welding, was sentenced to six years. This could still change, however, for he is still going through trials connected to the financial collapse.

    Since the investigation concernig the cases connected to the collapse of the banking system in 2008 is now over, the office of special prosecutor will soon be dissolved, as the office was created specifically to tackle the magnitude of this criminal investigation.

    In the photo above you can see: Hreiðar Már Sigurðsson, (to the left) former director of Kaupþing, who got the heaviest sentence. With him is Sigurður Einarsson, wanted by Interpol years ago for a brief period time. The third guy to the right is former President of Iceland Ólafur Ragnar Grímsson.

    All wars are bankers wars!

    The Federal Reserve Bank of New York and in other countries is owned by foreigners. They are private banks to whom world governments are enslaved and therefore the banks get away with every crime.
    Anonymous
    5th Feb 2019
    3:08pm
    Totally irrelevant to the minor issues with the Australian banking practices.
    Iceland was all out banking fraud
    This is what happens when socialists try and run businesses
    HKW
    5th Feb 2019
    3:23pm
    Forgot the add the link to the Icelandic article, but it probably wouldn't be published anyway ...
    SFR
    5th Feb 2019
    8:08pm
    Minor issues Lothario, dreamer, nothing but a dreamer. Idiot
    mike
    5th Feb 2019
    3:51pm
    Well they did this in the US, had a series of smaller banks instead of big nation wide banks, and when the global recession hit, the smaller US banks failed whilst the big Australian nation wide banks survived and kept the Australian economy safe. And our savings safe.
    The Government has tried several times to destroy the big banks, and is still trying, but when our banks go, so will our economy and standard of living.
    Rae
    5th Feb 2019
    4:02pm
    The big Australian banks only survived because Swan had Howard's money to pump through them in millions of $900 lots and school refurbishments and pink batts.

    And the US FED gave them a great big bail out loan.

    Next time they may not be so lucky.
    LJ
    6th Feb 2019
    8:41am
    It is the credit squeeze that is hurting the public. The negative consequences for the aged are being amplified by Shorten and Labor's declared intent to use seniors as a milch cow to fund Labor's big spend. That big spend is already in full swing with the wild sweeping promises to its green left fringe and the arrogance being shown by Shorten and Bowen to seniors even before the election. That can only get worse after the election.
    johna53
    6th Feb 2019
    8:48am
    Jail. For greedy bank execs and their incompetent lunch buddies in APRA etc. Back date the laws. Compensate the victims from fines to the banks. Stop the rot.
    Dollars over Respect?
    6th Feb 2019
    12:01pm
    Re the big 4 bank CEOs,their Boards, Insurance Companies (that refuse to payout unless the claim-victim has the means to drag them kicking through Court) AND all Dodgy Financial Advisers (who have acted in their own interests over their own customer's): "Purge, Prosecute and Punish" - severely! ! !
    Clean out everyone of these greedy criminals [for clarity: a criminal is someone who commits or is rightly held responsible for a crime]. The punishment should be time in gaol PLUS massive fines to match their exorbitant salary packages, which they have, in collusion, agreed to amongst themselves. Just who is actually worth a 'multi-million dollar salary anyway"'?! If hit by a bus, another quickly slips in without even a hitch in operations.

    Greed and whistle-blower fear is what was/and still is behind these crimes - as many of us "customers" knew all along. Our politicians could also take a lesson from what happens to those who use 'smoke and mirrors' for selfish unearned personal gain. VOTERS the time to act is upon US and WE must make change happen. This is the only opportunity and the only way WE can have any hope to correct this behaviour. GAOL them and SHAME them.
    fairy
    8th Feb 2019
    9:27am
    I had been teaching commerce, accounting and how to budget for 45 year. The majority of teenagers DID NOT want to be bothered internalizing any of it (Luckily I did have some who became finance wizards).
    I think those with confidence of today's IT and finance considerations should be up for mentoring senior citizens probably through My Aged Care. Volunteering similar to JP's.
    (Commissioner for Declarations)
    However I found a transition from school to work program was listened to


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