Banking royal commission: What the Hayne report means for you

From your home loan to your retirement savings, there are big changes coming that affect the most significant money matters in your life. As the dust settles, here’s what you need to know.

The royal commission found financial services companies engaged in a potentially criminal shakedown of customers. Its 76 recommendations are a blueprint for a shake-up.

The goal? Better value. In some cases that won’t be difficult, given multiple institutions were taking fees without deliver any service at all.

There are big changes coming that affect the most significant money matters in your life, from your home loan to your retirement savings.

As the dust settles, here’s what you need to know.

BORROWING

The commission’s most controversial recommendation is to make home-loan customers pay a fee — possibly in the thousands of dollars — to cover the cost of arranging the loan.

The fee would be payable to the lender or mortgage broker, if you used one.

According to Commissioner Kenneth Hayne, you could add the fee into the loan as happens with the much heftier mortgage lenders insurance payable if a borrower’s deposit is less than 20 per cent.

At the moment the lender pays the broker for arranging the loan.

The royal commission has is recommended that home-loan customers pay a fee to cover the cost of arranging a loan.

As things currently stand, people who go direct to a bank are not paying a brokerage fee, although bank staff may get a commission for selling a loan.

Broker payments are partly upfront and partly trailing. They can run to $6000 or more. The commission found the payments led to outcomes not in borrowers’ interests. The loan might be unnecessarily large. Or the lender might be chosen because it paid the fattest commissions.

These kickbacks would be banned under Mr Hayne’s proposal.

Labor backs it; the Coalition has only committed to getting rid of trail commissions that run for years after the loan is signed — not the upfront commission.

Research by Commonwealth Bank suggest it would save hundreds of millions of dollars under the changes. Its CEO Matt Comyn has said the savings could lead to lower interest rates.

But the broking industry says it lead to higher interest rates and less competition. Their future is under threat.

Mr Hayne said it’s already been done in the Netherlands and “the mortgage broking industry continued without significant adverse consequences to its own operations, the market generally or individual participants.”

SUPER

The headache-inducing task of merging your super into one account may become a thing of the past.

Commissioner Hayne recommended changes to ensure we all have just one account and therefore avoid paying fees more than once. An estimated one in three accounts is a multiple. The fees on these duplicates is about $2.6 billion a year, the Productivity Commission says.

The task of merging your super into one account may become a thing of the past.

About $700 billion of our retirement savings is in low-fee MySuper accounts. The funds running these have been able to deduct financial advice fees. Mr Hayne said that had to stop, and both sides of politics agreed.

The union-linked fund Hostplus spent $260,0000 of members’ money in 2017 entertaining executives at the Australian Open tennis tournament, the royal commission heard.

The aim was to encourage these CEOs their employees’ compulsory contributions into the $33 billion industry fund.

That’s going to be eliminated, too.

INSURANCE

These are shocking figures — the current caps on life insurance commissions are 80 per cent of the policy cost for upfront kickbacks and 20 per cent ongoing. Crazy.

Commissioner Hayne urged these be to cut these form of “conflicted remuneration” to zero as soon as possible. This should lead to greater cost transparency and better value.

There are calls for greater transparency and better value when it comes to insurance.

He also called for a cap on the commission paid to car dealers for so-called “add-on insurance”, which might cover something like damage to car wheel rims. It is often taken out by first-time car buyers — think apprentice tradies — without them understanding how unlikely they are to get any benefit from it.

Swann, owned by IAG, only paid out around 10 per cent of the $1 billion in add-on insurance premiums it collected over a 10-year period, the royal commission heard.

The pushing of funeral insurance will be reined in too.

FINANCIAL ADVICE

To put an end to the fee for no service debacle unearthed by the royal commission, advisers will have to set out in writing what they are doing for you and the total cost.

And fees and commissions that may have been agreed to years ago won’t be allowed to be continued to be charged.

The report recommends tough new guidelines for financial advisers.

Up to 40 per cent of the population has used a financial adviser. Many have wondered if their adviser is truly independent. The answer should soon be clearer. They will have to tell you if they are not “independent, impartial and unbiased”.

SHARES

The big four banks are so big they account for nearly one-quarter of the ASX 200.

Their values shot up by between 3.7 per cent (NAB) and 6.8 per cent (Westpac) on Tuesday.

That will have delivered a substantial shot in the arm to your superannuation — probably more than you made from going to work.