The banking Royal Commission was held to investigate the financial advice industry after the big four banks and AMP were accused of malpractice.
The aim of the Royal Commission was to find out just how widespread the issue is and to raise standards in the financial services industry.
At Here Business & Wealth, we believe that the Royal Commission was a step in the right direction for financial advice and hope that it will bring about much-needed change to the industry. But what does this mean for your financial world and what impact will this have on your business?
Royal Commission – Key Issues
Round one of the hearings on consumer lending practices identified a number of issues ranging from irresponsible lending practices to falsifying mortgage applications, making it clear there are serious issues within the industry at present. As the focus of the commission shifted to financial advice, the banks continued to come under the spotlight, with issues around inappropriate financial advice and the conduct of financial advisers. Commonwealth Bank has clearly fared worst through the first two rounds of hearings, which has been reflected in its weak share price performance. The third round of hearings have now commenced and will focus on small and medium enterprises.
The key issues faced by the big 4 to date have been summarised below.
- ANZ: Breaches of responsible lending requirements through their car finance business Esanda, unsuitable pre-approved overdraft offers, account admin errors, inappropriate financial advice, improper conduct by financial advisers.
- WBC: Irresponsible lending practices in car finance, unsuitable credit card limit increases, inappropriate financial advice.
- NAB: Fraudulent loan applications, inappropriate financial advice.
- CBA: Accreditation and arrangements with brokers, add-on insurance products, unsuitable overdraft facilities and automated system failures, fees for no service, investment platform fees.
While there will be widespread industry repercussions from the conclusion of the Royal Commission, the peak in negative sentiment towards the banks and certainly the ‘sticker shock’ of bank behaviours may well have passed, although the commissioner still has the power to recommend civil or even criminal charges be laid.
With reporting season for 3 of the 4 major banks just around the corner, the market may well start to focus on the fundamentals, especially the attractive dividend yields now on offer, combined with the potential for double-digit capital growth.
The banks continue to experience a number of challenges including low credit growth, low-interest rates, declining house prices, tighter lending underwriting standards and greater regulatory oversight from the likes of ASIC, which are manifesting themselves in low mid-single digit earnings per share growth. However, with all major banks currently meeting the ‘unquestionably strong’ capital requirements we see limited downside risk to dividends.
The outcome of the Royal Commission and their findings present an opportunity for your adviser and bank managers to think about the value of services they are providing and perhaps review clients’ financial position to ensure they are maximising the probability of helping achieve financial goals.
Here Business & Wealth is happily independent and here to help you work through the confusion surrounding the Royal Commission and how it may impact your financial world. Chat to us - we're happy to answer any of your questions.