The Productivity Commission released its damning Competition in the Australian Financial System report last week, which broadly assessed the marketplace of financial products in Australia as a “blizzard of barely differentiated products”.
In a bid to alleviate product confusion and boost competition, the Productivity Commission floated the idea of allowing advisers operating under an Australian Financial Services Licence (AFSL) to offer personal advice on home loans, in direct competition with mortgage brokers. This would require the Australian Securities and Investments Commission (ASIC) to consider a new-look AFSL, which does not require a separate Australian Credit Licence (ACL) to be obtained.
“[This] would both expand sources of competition in home loan distribution and provide more holistic personal financial advice services to consumers,” the report said.
As it stands, advisers cannot advise on credit products, they can only provide general credit advice. Where advisers do provide specific advice on credit products, they must also hold an ACL.
Less than 10 per cent of AFSL holders and authorised representatives provide both financial and credit advice.
However, a likely hurdle to the feasibility of this model is the current conduct standards in financial advice, which are unfolding at the royal commission.
Advisers authorised by the major banks have been under fire in particular, as clients reveal poor financial advice left them financially and emotionally devastated.
Major banks cop fresh criticism
The Productivity Commission also criticised the big four banks for “exploiting” their market power to the “detriment” of consumers, and rejected their claims that the growing range of products and benefits offered to customers, mortgage rate discounts and low cost-to-income ratios brought on by competitive pressures are evidence that competition is strong in the financial system.
“Major banks are the dominant force in the market. As a result, they are able to charge higher premiums above their marginal costs, compared with other institutions. Approximately half of the loan price that major banks charge is a premium over the marginal cost — double the margin that other Australian-owned banks have,” the Productivity Commission report stated.
“Rate increases were made possible in part by strong demand for housing loans in some segments; but even where regulators intervened specifically to curb this demand, ADIs were able to increase rates for new and existing borrowers, using their pricing power to increase their profits despite regulatory shocks.”