If you’re trading on the ASX (Australian Stock Exchange) here’s a few key things to know about the Banking Royal Commission report and what this means for your stock portfolio.
Last year there was a public inquiry into the misconduct in the financial-sector – I’d like to say we’re surprised? So, if you’re holding any stocks in banks, financial planning or mortgage broking companies, here’s what you need to know:
The Aussie government released their report and 76 recommendations came from the inquiry on how to end greed and malpractice.
Citi analysts said the list of recommendations were the “best possible set of recommendations given the circumstances that the sector could have reasonably expected”
Moody’s ratings agency that rates the credit risk of companies (so their ability to repay their debts) said it was “unlikely to alter the favourable structure of the banking industry” meaning banks are still a safe investment.
Bank shares surged by an average of 5%, This was the biggest daily rise in 10 years, and more specifically since March 2009, for the Australian financials index.
CBA +4.7%
NAB +3.9%
ANZ +5.6%
Westpac +7.4%
The list of recommendations included that financial planners will now have to disclose the commissions they receive for selling wealth management products, so you can better assess if your financial planner is putting your financial goals ahead of their own.
Shares of financial planning companies, AMP Ltd and rival IOOF Ltd rose approximately 10% and 8% respectively.
The list of recommendations states that banks should stop paying mortgage brokers trailing commissions – these are part of the fee’s banks pay to mortgage brokers so that you, the client, doesn’t have to pay your mortgage broker to find you a bank loan.
The inquiry found trail commissions incentivise mis-selling, despite all banks offering much the same trail commissions.
Shares of Mortgage Choice Ltd plunged 25.2% and so did Australian Finance Group Ltd by 29.1%.
These shares plunged as investors lost confidence in the future profitability of these mortgage broking firms. If mortgage brokers have to adopt a fee for service, meaning their customers pay them, this could mean that more customers will go directly to their local bank where it currently doesn’t cost them an upfront fee to apply for a bank loan.
This also means transparency may decrease and banking monopoly could see a rise in interest rates – although this is not to the benefit of consumers, it could see a rise in profits for investors that own shares in the banks.
The recommendations are largely a step in the right direction towards more transparency for consumers and the surge in bank stocks shows that investors believe that consumers trust banks more than they distrust them.
One thing’s for sure, the future = transparency.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
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