Updated
Commissioner Kenneth Hayne’s final report, and the Government’s support for all 76 recommendations, leaves some parts of the financial sector at risk of being effectively legislated out of existence.
Mr Hayne’s report was scathing of a sales culture that resulted in poor customer outcomes, and recommended dramatic changes to the payment of mortgage brokers and financial planners that would see many leave the industry, as well as a major overhaul of insurance sales practices, especially for funeral cover.
The commissioner also referred several institutions to the corporate regulator for possible criminal charges around the “fees for no service” scandal, but declined to name names of individuals or companies that might face prosecution.
“Providing a service to customers was relegated to second place. Sales became all important,” the commissioner lamented.
“Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards.”
In the Government’s initial response to the commission’s final report, Treasurer Josh Frydenberg said it was taking action on all 76 recommendations, “and in a number of important areas is going further”.
“My message to the financial sector is that misconduct must end and the interests of consumers must now come first,” he said.
“From today, the sector must change, and change forever.”
Mortgage brokers face business-threatening commission overhaul
A key area for change is conflicted remuneration — that is where financial professionals are paid commissions for selling clients products, even though they may not be in the clients’ best interests.
To that end, Mr Hayne recommended first a ban on trailing commissions to mortgage brokers.
Next, he wants a ban on banks paying any commissions to brokers, as well as an obligation for brokers to act in their clients’ best interests, to be rolled out within two to three years.
But with more than half of all home loans now written through brokers and many smaller financial institutions relying on them for almost all their loan origination, the Government has adopted a watered-down version of this recommendation.
While it proposed brokers be subject to a best-interests duty and for trailing commissions and “other inappropriate forms of lender paid commissions” to be banned from July 1, 2020, it is planning for a review in 2023 about whether upfront commissions should be removed and brokers moved to a “borrower pays” system.
More to come.
Topics:
business-economics-and-finance,
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