Welcome to this month’s edition of the Dot Monthly!
The Commissioners report into the misconduct of the financial and insurance industries was released earlier this month and unfortunately, they’ve targeted the brokers and left the major banks largely unscathed.
Over the last 20 years, the broker network has made the industry more competitive, reducing the major banks net interest margins, and giving all Australians an avenue to compare loans from over 70 lenders. The result? The broker network accounts for 59% of all home loans written in Australia alluding to greater savings for the consumer.
What the commissioner has suggested in the report will be covered off below but, this serves as a major blow to the competition which will flow on to you, the consumer, leading to higher interest rates and paying to use the services of a broker (should the recommendations go ahead).
Summary of the main components of the report affecting Brokers
|Trail commission (1.3)||Lenders to be prohibited from paying trail within 12 to 18 months. Existing trail would stand unaffected.|
|Upfront commission (1.3)||Recommends the removal of upfront commissions over a period of a further 12 to 18 months (so 2 to 3 years time) to move towards a fee for service model to use a broker.|
|Best interest duty (1.2)||Best interest duty required. Breach will be subject to a civil penalty (i.e. it’s a legal duty).|
This whole royal commission was all about making sure consumers were left in a much better position, but as far as mortgage broking is concerned, you’ve got a royal commissioner who’s basically asking now the consumer to pay the fee rather than the banks, which is crazy!
In contrast to commissioner Hayne’s report, neither the Productivity Commission nor the Australian Securities and Investments Commission called for broker commissions to be scrapped in recent detailed industry reviews.
RBA flags uncertainty in Australia’s housing market
The Reserve Bank of Australia may drop the official interest rate to its lowest level since the 1950s just days out from the Federal Election. In a move that saw the Australian dollar
fall and forced financial markets to price in an interest rate cut, RBA governor Philip Lowe has used a major address to concede cash-strapped consumers and a slowing property market in some cities posed risks to the economy.
For the past year the RBA has signalled the next move in the cash rate – currently at a near-record low 1.5% – would be up, given a strong jobs market and solid economy.
But the failure of low unemployment to lift wages significantly and signs consumers are spending less has forced the RBA to lower its forecasts for the economy. Armed with important new inflation figures to be released in late April, the RBA board will meet on 7 May – just days ahead of a federal election widely expected to be held on 11 May or 18 May. Lowe says much will hinge on the strength of the jobs market, with unemployment now at 5%.
What has Dot been up to for the month?
After trying to digest the report from the royal commission, it is business as usual for us here at Dot. Understanding that things outside our control will be left for the universe to dictate whilst we here focus on what can control – Exceptional service, efficiency in our processes and results for our clients.
As always, we hope you enjoyed reading the blog and should you have any questions, please feel free to email Connecting@dotfinancial.com.au or you can call us on 1300 000 DOT (368).