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What the Royal Commission actually means for your money

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Lower fees? Better advice? Here's the no-jargon, no-politics explainer on what's going to happen.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (to give its full title) was officially launched in December 2017. Its final report became public on Monday 4 February 2019.

The Royal Commission has been one of the most extensive investigations ever into Australian financial institutions. Headlines during its public sessions have highlighted examples of bad behaviour ranging from charging dead customers for financial advice to selling credit card insurance that couldn't actually be used. But now that the final findings and recommendations have been made public, what happens?

What changes are recommended?

The report makes 76 recommendations, covering a wide range of issues. Many are specific to the institutions themselves, or to the two main regulators. The main changes which would have an impact on consumers:

  • Borrowers should pay mortgage broker fees. Currently, mortgage brokers receive compensation from lenders if a client signs up for a mortgage product from that lender. Under this new model, that fee would be clearly disclosed, and customers made aware they are paying it. (This doesn't mean it won't be a good value deal, simply that the costs would be more transparent.) This change would be rolled out over 2-3 years. Brokers would also be covered by the same regulations as financial advisers. The government has said it would introduce legislation to end trailing commissions for mortgage brokers (extra payments after the original fee), and that it will review shifting to a borrower-pays model, but it hasn't fully endorsed the recommendation in its original form.
  • No automatic renewal of fees. Ongoing fees charged by advisers must be specifically renewed by the client. (That should eliminate advice fees charged to dead people.) Advisers must also provide a clear statement to clients that their advice may not be impartial.
  • Hawking of superannuation and insurance is banned. This would mean, in effect, no cross-selling of superannuation or insurance by banks or advisers. - customers must seek out information on that specific product.
  • Consumer protection for small businesses. Consumer credit protection laws will now apply to small business loans of under $5 million, provided the business has less than 100 employees.
  • Work harder with non-English speaking and Aboriginal/Torres Strait Islander customers. Banks should work to identify suitable ways to work with remote customers. Dishonour fees and informal overdrafts should not be allowed on basic accounts.

While all these should be positive for consumers, the flip side of that is that credit in any form, whether that's home loans, credit cards or other loans, may well be harder to come by. We've already seen ASIC tighten rules around credit card eligibility this year.

When will those changes happen?

The Royal Commission can only make recommendations. Any significant changes will need to be implemented through government legislation, and many of those will be enforced by independent regulators such as ASIC and APRA. Indeed, one likely response would be to increase funding for regulators, so they can investigate instances of misconduct more quickly, and with more independence.

Both the Coalition government and the Labor opposition have said they will support all 76 recommendations. Note this doesn't mean enacting them exactly as the report suggests (as the mortgage broker example discussed above demonstrates).

It's unlikely we'd see any of those changes passed through Parliament before May, which is the latest date an election is due. So while some changes might kick in by the time the 2019-2020 financial year begins, many could take longer.

With that said, you don't need to wait for legislation to find yourself a better deal. If you don't know what fees and interest rates apply to your current loans and cards, find out and compare to get your money working harder for you.

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