Royal Commission Australian Banking

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Howard Littlejohn

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#3
It will be interesting to see if any major recommendations come out of it. Royal Commission used to get out of control, but terms of reference are far more tightly worded these days. And with the banks writing letters to bring it on, they probably got the ToR they requested.
 

Crash Davis

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#4
PM Turnbull has announced there will be a Royal Commission in to Australian banking.

There will be some pretty nervous bankers out there I'd imagine!
nope, not at all.
there are some rogues out there for sure, selling insurances, accounts etc to people that really don't need it. all for the sake of incentives and sales targets.
every single meeting, vc or teleconference we have revolves around sales, hardly anything about NPS (net promoter score) or customer satisfaction.
my teams nps (customer satisfaction survey) is the 3rd highest in Vic, that's what we focus on and customer advocacy. the rest will come afterwards.
i'm not nervous for me or my team, we have a 97% internal audit result and great advocacy scores, those that have been churning accounts and "gaming" should be very worried, **** em'
 

Power Raid

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#9
The royal commission is so close yet so far away from uncovering one of the biggest financial scams ever in Oz.

They have the guy fronting to financial scam as a "matter of interest" but haven't looked beyond the financial losses at this stage. If they do, they will find bikies and mafia.

The scam is simple.................entice people to tax dodge and or take ever increasing risks though "intro" scams. The allowing trust and greed to take over, taking bigger and bigger punts and in some cases ever increasingly curious tax declarations.

Then simply steal their money through a major fraudulent investment or simply transferring their retirement savings to their own account. In other cases, where the investor hasn't compromised themselves, they simply use blackmail, extortion and stand over tactics. As they have the individuals financial records, they know exactly what they can extract and where from.


The scam is no longer in full operation as a mafia boss has gone "full Ben Cousins" and fried his brain and the bikie boss is in jail on unrelated convictions. Nevertheless, the royal commission should recommend a full and joint federal and local police investigation.
 

JohnW

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#10
The royal commission is so close yet so far away from uncovering one of the biggest financial scams ever in Oz.

They have the guy fronting to financial scam as a "matter of interest" but haven't looked beyond the financial losses at this stage. If they do, they will find bikies and mafia.

The scam is simple.................entice people to tax dodge and or take ever increasing risks though "intro" scams. The allowing trust and greed to take over, taking bigger and bigger punts and in some cases ever increasingly curious tax declarations.

Then simply steal their money through a major fraudulent investment or simply transferring their retirement savings to their own account. In other cases, where the investor hasn't compromised themselves, they simply use blackmail, extortion and stand over tactics. As they have the individuals financial records, they know exactly what they can extract and where from.


The scam is no longer in full operation as a mafia boss has gone "full Ben Cousins" and fried his brain and the bikie boss is in jail on unrelated convictions. Nevertheless, the royal commission should recommend a full and joint federal and local police investigation.
Elaborate if possible. I really enjoy reading your posts on finance. Please increase your output :)
 

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#16
My bank shares up about 5% today so assuming the final report not too bad for the banks

Sent from my SM-G930F using Tapatalk
Correct.

Although the mortgage brokers and (maybe) insurers are likely to be ripped a new one, the banks are really only going to get a slap on the wrist, and maybe a few fingers tied behind their back, but not the whole hand.

Sure, a few financial penalties, but in the scheme of organisations with billions in revenue, any penalties and restructuring legislation are imho not going to be major enough to dent their profits hugely. The housing downturn is another issue though.

This post does not represent financial advice - merely an opinion ;)
 
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theyellowsash

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#17
brokers should be ripped a new one. they advertised themselves as being an expert in getting people the best deal, but in reality all they did was find the same deals anyone could find on the internet, and list them from highest to lowest. Not only that, but they excluded lenders who wouldnt pay them a commission. in reality, all they were doing was showing people the best deal for themselves, not the consumer.

god forbid they be made to provide an actual services. If people arent willing to pay for their services, well then maybe they arent performing services worth paying for. all they need to be able to do is say "pay me $1000 and i'll save you $2000, so we both win" and people will still use them. if they cant even say that then its their own fault.
 

Simon_Nesbit

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#19
Average broker settles 50 loans per year, with average loan size around 320k. = 16m for year 10.
Run-off (repayment, sale, OFI refinance) runs about 10%, so = yr.9 = 14.4, 8....

About 100 Million loan book. @ 0.15% (industry average) that is $156k pa.

The average loan term is only 4 years though, so in reality is probably closer to half that (74k).

Of those, roughly 20% will refinance again with the broker (40 loans @ 320k) = 12M @ 0.65 = 78k upfront.

Based on average 10 hour per settlement, for approximately 4000 hours work they generate 150k income. Less assistant salary (40-60k) and overheads would give an income of about 80-100k. Less if they maintain a physical store or provide service to customers who don't obtain a loan.

Due to time taken per settlement, it's difficult for any individual broker to grow much beyond that size without compromising either service to new customers, (or existing for that matter) - without expanding or adding additional sales and support staff.

I also haven't factored in any aggregation fees - some aggregators take a large (20%) share of incomes...
 
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#20
brokers should be ripped a new one. they advertised themselves as being an expert in getting people the best deal, but in reality all they did was find the same deals anyone could find on the internet, and list them from highest to lowest. Not only that, but they excluded lenders who wouldnt pay them a commission. in reality, all they were doing was showing people the best deal for themselves, not the consumer.

god forbid they be made to provide an actual services. If people arent willing to pay for their services, well then maybe they arent performing services worth paying for. all they need to be able to do is say "pay me $1000 and i'll save you $2000, so we both win" and people will still use them. if they cant even say that then its their own fault.
Whether or not people should find value in the service they are offering (I personally think they should but that point is moot) the issue is that a change in policy will mean that people will now have to pay for something that was previously free. While it is theoretically possible for everyone to go and find the same deals that a broker can access in the majority of cases they won't (due to either lack of time/effort or lack of requisite financial acumen). Ultimately it will lead to a lot of people going it alone and getting a worse deal on their loan than they otherwise may have got from a broker. A good broker doesn't just find the loan and sign the customer up BTW, they will liaise with the bank, ensure payments are all made on time (especially important if you're building a new home) and just generally deal with all the s*** that most of us don't want to.
 

theyellowsash

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#21
Whether or not people should find value in the service they are offering (I personally think they should but that point is moot) the issue is that a change in policy will mean that people will now have to pay for something that was previously free. While it is theoretically possible for everyone to go and find the same deals that a broker can access in the majority of cases they won't (due to either lack of time/effort or lack of requisite financial acumen). Ultimately it will lead to a lot of people going it alone and getting a worse deal on their loan than they otherwise may have got from a broker. A good broker doesn't just find the loan and sign the customer up BTW, they will liaise with the bank, ensure payments are all made on time (especially important if you're building a new home) and just generally deal with all the s*** that most of us don't want to.
Meh, don't care. People feel like they have a right to free service. If a service is worth having it's worth paying for. If people don't have to pay, then they can't expect a service that is in their best interests and that's ultimately what they've been getting. If it means that people have to pay some money or learn the internet or some fiscal responsibility, then that's a small price to pay to stop people being exploited by these vampires.

And besides, anyone who think it's free is kidding themselves. The banks aren't going to pay brokers when they could have done the same for free. You know how the banks claim that they have to charge higher rates than the rba because of costs associated with lending....paying brokers for 30 years for every loan they get is one of them. The banks pass on the cost of paying brokers to the consumer in the form of higher interest rates, so the consumers still end up paying for brokering services that aren't working in their best interests.
 

Hamingja

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#22
And besides, anyone who think it's free is kidding themselves. The banks aren't going to pay brokers when they could have done the same for free. You know how the banks claim that they have to charge higher rates than the rba because of costs associated with lending....paying brokers for 30 years for every loan they get is one of them. The banks pass on the cost of paying brokers to the consumer in the form of higher interest rates, so the consumers still end up paying for brokering services that aren't working in their best interests.
It's cheaper for the banks to pay a broker than employ someone themselves to do the job. It's basically outsourcing. Instead of paying an employee a salary, paying for training and development for employees in a high turnover industry, and paying for overheads like renting a physical office for prospective customers to go to when the banks want to close as many branches as possible to cut overheads, they pay commissions to a broker instead. You cannot say that banks could do the same for free. Lending costs for banks would increase without brokers.
 

theyellowsash

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#23
That makes no sense. Currently banks have to pay brokers, which they factor into their lending costs. If banks are banned from paying brokers then that's a cost they don't have and therefore their lending costs are lower.
 

Simon_Nesbit

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#24
That makes no sense. Currently banks have to pay brokers, which they factor into their lending costs. If banks are banned from paying brokers then that's a cost they don't have and therefore their lending costs are lower.
Except for the branches they have to purchase (estimated $400kpa including overheads), the staff they have to employ (60kpa / 100 applications), let alone the additional training and resources for staff to take over all the jobs now performed by brokers, etc. There would be massive inefficiencies in the market as less qualified and experienced "processors" take over from brokers.

Brokers are worth approximately 7.5% market share to the non-big4. This is worth approximately 800 branches to non-major lenders in terms of distribution and market penetration. Considering they employ 26000 the true figure is probably closer to 2000 branches Australia wide. (They just send business to the big-4 anyway).

Crunch the numbers, and the ONLY banks that can potentially obtain cheaper acquisition costs than brokers are those with branch networks already above that 750 figure = CBA, WBC, NAB, ANZ. Bendigo has a different cost-base with their profit-share system - this may add them to the above 4 due to their franchise model. Who are those standing against brokers? It is self-interest, pure and simple.

For every other lender in Australia, Brokers provide a cost effective service - literally making money for them. This creates competition in the marketplace and dilutes the control the big-4 have over interest rates (and thus profitability). Before brokers, banks made 4% per loan. Now they make 2%. That 2% savings is mostly attributable to competition.

The banks direct channels are actually inefficient, costly and ultimately dying, as they are expensive to own and operate. The only reason they are still going is they provide the means for the big-4 to 'drown' the competition - by making the cost barrier to enter so high, the smaller lenders simply cannot afford to invest the required amounts to grow without negatively impact their bottom line. Brokers have significantly reduced the entry costs for other lenders.

Once you factor in the circumstances of broker clients (2 x FHB, 1.4 x Investor, 10yr younger average age, +1.2 Dep) and compare like with like, broker loans are cheaper to the consumer.

97% of Broker clients will return to a broker next time. 26% of bank clients will return to a bank next time. Brokers have 60% of the whole market, but closer to 80% of the <40 (and <30% of the 50+). The big-4 needed to make a stand, as the Broking industry was approaching critical mass - this puts the big-4 at risk, as their billion dollar profits would continue to be eroded.

Treasury, ASIC, ACCC, PC (final report) - anyone looking at the economics basically - On the side of the broker.
ABA (Bank owned), Sedgewick (bank funded), RC (lawyers), Choice (purport to be consumer but proven history of commercial bias and self interest in this industry since "one big switch").

MFAA, FBAA obviously pro-broker
CBA, WBC Bendigo anti-broker.
ANZ/NAB somewhat fence sitting/positive.
Most other lending entities seem pro-broker.

Liberal = Pro competition, but politically pressured to apply RC recommendations.
Labour = Politically cornered, despite economic advisors and treasury are pushing the anti-broker agenda.
 

Simon_Nesbit

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#25
FWIW, using CBA's own information.

CBA Total broker commissions ~40M per year = 0.01% of all mortgages.
Net Interest Margin reduction since Brokers established = 2% saving.
CBA Profits = 3 BILLION per year = 0.75% of all mortgages

Let us pretend that all banks find a way to replace their broker loans at Nil cost (CBA's proposal to RC via the UBS report that went unchallenged). Let us pretend even with no competition, banks won't get greedy and seek to increase profits (even the RC disagreed with that). Let us pretend that all customers will know every banks credit policy and have >90% approval rates, and negotiate for better rates when possible.

No Brokers saves you 0.01% or approximately $32pa

...now in this hypothetical let us assume banks abuse their oligopoly powers as they did before brokers, and the Net Interest Margin goes back to 4% before competition.

No broker now costs you 2% or approximately $6400pa.

PLUS a new fee of $2-3k if you want to get a better deal somewhere else.

Would you rather give your broker $32 to put food on the table, or your bank 8k to go to executive salaries of people that "should face jail time" according to the RC?
 
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