As the dust now settles from the financial services royal commission and the country mulls over Kenneth Hayne’s final report and its 76 recommendations, it is the small insurgents in Australia’s financial sector which will be looking to make their moves.
It is the wave of neobanks and robo-advisers that have entered the Australian market in recent years in particular that stand in sharp contrast (and competition) to traditional banks and financial advisers.
Chris Brycki, founder and CEO of robo-adviser Stockspot, and Eric Wilson, founder and CEO of neobank Xinja, spoke to Your Money Live immediately after the report dropped about what impact it would have on competition.
Beyond anything specific contained in the report, the enduring legacy of the commission may be the growing consciousness among Australians about how badly things can go wrong when the financial industry is left to self-regulate.
“For the last few years it hasn’t been any particular policy recommendation, it’s been a greater awareness by consumers more broadly within banks and the problems when they get advice from banks or products promoted by banks,” Brycki explained.
“A greater awareness of bad insurance products and bad investment products has been the greatest benefit for us [as competitors].”
That fact is clearly not lost on those looking to offer a clear alternative to the big banks.
During the final round of public hearings, Commonwealth Bank CEO Matt Comyn described how, on attempting to remove junk credit card insurance from a product line, had been told by his predecessor Ian Narev to “temper his sense of justice”.
Wilson appeared on the panel wearing a t-shirt that insisted Australians do the opposite.
“I really do think neobanks are the silver bullet to this. It’s really hard to misbehave as a bank if your customer can walk out the door, pick up their phone and join another bank or get a mortgage with another bank. That tends to keep you on the straight and narrow,” he explained.
That’s not to say specific policies won’t improve things for customers.
The proposal that Australians, if they choose a default superannuation fund, will only be able to have one is also a coup for consumers.
“There are almost 10 million unused super accounts out there and I think that costs about $800 million a year in admin fees alone… so that will save people a lot of money,”
That combined with the move to prohibit the charging of superannuation fees for access to advice, regardless of whether they receive advice, is another step forward.
However, while consumer discontent is palpable, the report will have made “a few relieved bank executives”, Wilson said.
“I think the failure to break up the vertical integration of the banks is the biggest surprise,” he added.
That decision is particularly baffling given the ASIC finding last year that on three out of every four occasions when a customer was advised by a big four bank to change to one of the banks’ products, it wasn’t in the customer’s best interest.
“If that sort of information and the fact that this commission had hours and hours of evidence of people who had been badly done didn’t give them enough impetus to separate these, then I don’t think anything will,” Brycki said.
Those who were expecting the final report to provide conclusive answers would have been disappointed with what they found, according to Brycki.
“The biggest shortfall of the recommendations today is that there aren’t any recommendations that make the right structure of the system,” he said.
Nor were the answers it did provide clear cut.
The recommendation to phase out commissions that mortgage brokers receive and pay them an upfront fee instead, for example, may prove problematic.
While Brycki applauded the move to have brokers fall under financial advice regulations, he said there were still major issues.
“The problem is if they are still working for one of the banks, that advice is inherently going to recommend that bank’s products and there’s just no way of enforcing that to be in the best interests of consumers unless the adviser is separate from the product.”
Watch the full interview above or see our full royal commission coverage.