This column was supposed to be a rip-snorter.
See, Monday — when the findings of the Hayne Royal Commission were released — was like Grand Final Day for me … I (almost) got more airplay than Kerri-Anne Kennerley. Not only was it the biggest news item of the week, it was arguably the biggest finance story since the GFC.
So, earlier in the week I wrote to the Barefoot Community — literally hundreds of thousands of people — and offered to answer any questions on the Royal Commission, in today’s column.
I had a tin of Nescafe Blend 43, and toothpicks, at the ready to answer the flood of questions.
Here’s what came through:
One guy wanted to know if marijuana stocks would be affected (ummm no, smokey), another asked what aftershave I use (?), and a few wanted to know if it was a good time to buy or sell homes.
So here’s my big takeout from this week:
You don’t really give a toss about the Royal Commission findings, do you?
(Sure, the media banged on about it, but everyone else was like, “How about that psycho on MAFS, am I right?”)
Yet there was one group who flooded my inbox: mortgage brokers — who were angrier than Alby Mangels (google him) at the Hayne-bomb’s recommendation to blow their trailing commissions to Timbuktu.
It was easy to spot them — they often wrote IN FULL CAPS. Why were they so mad?
Well, the biggest change from the Royal Commission recommendations will come in two to three years’ time when you shop for a home loan. If it all comes to pass, banks will be banned from paying both up-front and trailing commissions to brokers. Instead, you’ll pay an up-front fee to the mortgage broker for the advice.
Yet how will that work out in the real world?
Luckily, I happen to know, because I did this last year with one of my staff, Karen, who came to me and said she wanted to refinance her home loan.
We did three things:
First, we shopped around to see what rate online lenders like UBank and Homeloans.com.au were offering.
Second, she rang her bank and used the scripts in my book to see if they’d match thecheapest deal.
Third, I arranged for her to see a totally independent mortgage expert who charged an hourly fee for his unconflicted research, with absolutely no kickbacks. (This is the proposed model that will be in place in a few years.)
His fee for the research?
Well, you could have knocked Karen over with a feather.
“I don’t have $4,000!” she cried.
The independent broker explained it would take 20 hours of research at $200 per hour … but that he would also rebate both the upfront and the trailing commissions.
In the end, Karen ditched him and went with another broker who was recommended by her accountant.
“What did they charge you?” I asked.
“Actually, I don’t remember … but I know I didn’t have to pay anything up front!” she said.
And there’s the problem:
The finance industry has trained customers to expect that financial advice should be ‘free’ … free home loan advice, free insurance advice, and (back in the old days) free financial plans.
However, the truth is that ‘free’ is the most expensive way to get advice — because they’re loading up the cost of the product and generally expressing it as a percentage rather than a flat dollar cost, to obscure it further.
Still, most Aussies are like Karen … they’d rather have ‘free’ advice — no matter how much it costs them in the long run.
Tread Your Own Path!