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Trust No One: How the Royal Commission into Finances Affects Your Livelihood
Posted on: 24/3/2018
On the 14th of December 2017, while most of us were busy filing into Westfield shopping centres and hurriedly clicking through last minute Christmas deals, Australian Governor-General Peter Cosgrove was unveiling a very special Christmas gift of his own: The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
His announcement that a royal commission into banking had moved from a suggestion lobbed around Canberra to an actual investigation sent shockwaves through the Australian finance sector.

While the sector has already been under heavy scrutiny from both the Australian Securities and Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), the Royal Commission is a much bigger deal than any previous efforts to investigate potential wrongdoing in Australia’s finance industry.

This is because:
1. The Commissioner’s powers far reaching, so to warrant conducting a royal commission, the allegations must be extremely serious, dangerously widespread or both. The Commissioner, Honourable Kenneth Madison Hayne AC QC, can summon any person to give evidence or to produce documents under oath. He can authorise the Federal Police to execute search warrants. And, in his report, he can suggest that companies be sued, laws be changed and criminal charges be filed.

2. The Royal Commission is set to be completed by September 2018 - only 10 months after it was announced. This means banks and financial advisers have precious little time to prepare themselves for the prying eyes of investigators and to get their official stories straight. Those called upon to give evidence will have as little as a week’s notice before they have to appear before the Commission.

3. The public are filing hundreds of complaints. So far, the Royal Commission have received 1611 submissions from concerned citizens. 64% of submissions are related to banking, 12% are related to super, and 6% are related to finance.

As you can see, a Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is serious business.

At this point you might be wondering: What have banks and financial advisers done that is so terribly wrong?
Why We Need A Royal Commission: Crime, Conflicts of Interest & Crappy Advice
When it comes to banking and financial planning in Australia, the industry is awash with fraudulent activity, conflicts of interest, and just plain bad advice.
Let’s start with the banks.

All four of Australia’s big banks are up against the wall for actions that range from slightly unethical practices to downright criminal behaviour. The Commission will be examining:

• Fraudulent loan applications at National Australia Bank and Aussie Home Loans (the latter of which is owned by the Commonwealth Bank of Australia)
• Questionable car financing deals made by Westpac and ANZ
• Unsuitable credit card limit increases at Westpac
• Credit card fees at Citi
• Add-on insurance products sold by CBA
• Unsuitable overdrafts and administration problems at both ANZ and CBA

In addition to bad banking practices, financial advisers are also coming under fire. It has already been revealed that:

85% of Australian financial planners are associated with “financial product manufacturers” in some way - a clear conflict of interest.

Financial advisers at the big four banks and AMP have not acted in the best interest of their customers 75% of the time and in 10% of examined cases their instructions have left customers “significantly” worse off, according to an ASIC report released in January.

Financial planners are behind more than 33% of the serious misconduct cases identified by the Financial Ombudsman Service (FOS) since 2012.

ASIC - the body meant to regulate the financial services industry - cannot be trusted to do its job properly. In 2014 a Senate inquiry called for a royal commission after it found ASIC had been too ready to believe information the Commonwealth Bank gave about its financial planning division.
What the Commission Will Investigate
Australia has had over 100 royal commissions, and each of these has started with the Commissioner outlining the “terms of reference” of their enquiry. In this case, the scope has been defined by Kenneth Hayne very broadly.
Basically, Hayne wants to find out:
• Whether banks and other financial service entities (including their directors, officers and employees) are guilty of misconduct and whether any criminal or other legal proceedings should ensue

• Whether financial service entities have used superannuation funds or retirement funds in ways that aren’t in the best interests of members

• Why misconduct is occurring: Is it a matter of corporate culture and governance or an industry-wide problem?

• Whether bank’s promises to right past wrongs were sufficient and carried out appropriately

• If our existing laws and policies (internal and industry codes of conduct) regarding finance, banking, superannuation and insurance are adequate

• Whether regulators like ASIC and APRA are effective

• If we need to change our laws or at the very least, update industry practices

What Does the Royal Commission Mean for Me?

If you’ve got a bank account, superannuation, insurance or a mortgage, then you’ll be affected by the Royal Commission’s final report in some way.

ASIC’s new chairman James Shipton has come forward with a very blunt explanation of the impact the finance sector’s alleged misconduct has on the lives of everyday Australians:

"These entities are merely veils for the real people that stand behind them: individual shareholders, investors, consumers and depositors. And, because we are dealing with other people's money, we must never forget that financial risks can, and often are, catastrophic to real people and can, at an extreme, cause human suffering. After all, it is real money to real people.”

The fact that he must remind bankers and financial advisers that money is real and owned by real people speaks volumes about the culture within the sector.
It’s important to know, however, that the Royal Commission can only investigate and report - it cannot pursue damages:

“The Royal Commission has become aware that some people may have been receiving information that the Commission can make a decision to refund investors or provide compensation. Such claims are not correct. The Commission cannot resolve individual disputes. It cannot fix or award compensation or make orders requiring a party to a dispute to take or not to take any action.”
The final report, will, however, shake up the finance industry in a big way, and how you’re ultimately affected will depend on how much skin you have in the game and what Hayne’s findings are:
Superannuation holders
Rumours of fee gouging in this government-mandated industry have been circling for years. Hopefully after the Royal Commission concludes, Australians will have clearer insights into which superannuation funds are acting in their member’s best interests, and which should be dumped by consumers ASAP.
Mortgagees & owners of other financial products (loans, credit cards, insurance policies)
Your bank or financial adviser may be liable for losses you’ve incurred as a result of their failure to act in your best interest when recommending finance products, and you may be able to join a class action in future.
Bank share holders
Be prepared for the impact that airing your bank’s dirty laundry may have on the value of your shares. If the Commission finds evidence of a mis-selling of mortgages or unscrupulous lending practices, a class action against the big four banks may be recommended. 

If there is scrutiny of bank’s profits or suggestions that banks have been benefiting from a lack of competition, this could lead to banks dropping their mortgage broking arms. Or, if your bank looks comparatively better than other banks under the microscope, you could benefit from an upswing in share value. 
Licensed financial advisers
If you’re suspicious of wrongdoing in your organisation, now is the time to jump ship before heads start to roll. The Commission’s findings could sink entire companies, and severely damage the value of others.
How Can I Tell If a Financial Planner or Mortgage Broker is Acting in My Best Interests? 
Find out who pays them  
Did you know that CBA owns Aussie Home Loans and also has a 20% stake in Mortgage Choice? Or that Choice, FAST and PLAN are all owned by the National Australia Bank while Connective, Vow Financial and Yellow Brick Road are partially owned by Macquarie Bank?  
The big four banks have kept their associations with mortgage brokers under wraps for a long time, which has undoubtedly hindered consumer’s ability to find the best deals.

If you need to get financial advice - particularly relating to mortgages - it’s important that the person you’re talking to doesn’t have a vested interest in selling you a certain set of financial products.

Ask for full disclosure of all the adviser’s affiliations before you book a meeting. Financial advisers are legally required to tell you who they are receiving commissions from.
Make sure they’re qualified & licensed
When it comes researching financial advisers, the Australian government has done a lot of the leg work for you.
Just type in your candidate’s name, adviser number or ABN into ASIC’s online Financial Advisers Register and you’ll gain access to:

• A list of their previous and current appointments
• Details of any disciplinary actions taken against them
• Details of their qualifications and training
• A list of any industry associations memberships they hold

The Bottom Line 
With Australia’s financial services sector contributing $140 billion to Australia’s GDP every year, this is going to be one of the most important Royal Commissions in our nation’s history.
And, until we can trust service providers like banks and advisers to act in our best interests, it is up to us to make sure our money is managed responsibly.

Do your research, don’t take any financial advice on face value, and remember: A truly independent financial adviser is worth their weight in gold.

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