Murray inquiry report confirms bank fee rort

The interim report of the Financial Services Inquiry highlights how the public have been taken for a ride by the major banks and how technology provides an opportunity for smaller players to disrupt the bank oligopoly and deliver a fair go for consumers, said Chris Brycki, founder of Stockspot, Australia’s first completely online investment adviser and fund manager.

“A generation of younger investors can no longer afford access to investment advice due to cost,” said Mr Brycki. The Inquiry showed that 42% of the Australian adult population have never used a financial adviser.

“The Murray report confirms that technology can reduce costs for consumers, decrease risk and improve the quality of and access to advice.”

The report found fees in Australia’s superannuation sector are among the highest in the OECD and there is “little evidence of strong fee-based competition in the superannuation sector”, resulting in only “modest” declines in fees over the past decade.

“Fees have consumed over a quarter of superannuation returns since 2004, despite scale increases,” said Mr Brycki.

A study of managed funds by Stockspot found that fees ate about 45% of returns from managed funds on bank-owned platforms over the 5 years to 2013 (https://www.stockspot.com.au/insights/managed-funds/)

The big banks and AMP control more than 80% of financial advisers in Australia and are vertically integrated with insurance and wealth management subsidiaries, prompting concerns about competition.

“Just 15% of financial advisers are fully independent and consumers are being taken for granted” said Mr Brycki. “An ASIC study found 39% of advice examples were poor and they could only find two example of good quality advice.”

The Murray report recognises the opportunity for technology to improve consumer outcomes and access to advice, arguing that comprehensive financial advice can be costly, and there is “consumer demand for lower-cost scaled advice”.

“40% of Australians either cant afford advice or would like to receive scaled advice online, and fortunately technological change is now allowing companies like Stockspot to deliver a fair go for consumers,” said Mr Brycki.

The Murray report also found that Australia’s current financial disclosure regime keeps consumers in the dark regarding the real implications of financial products and services. Removing commissions could “improve the quality of advice”, the report found, as would raising “minimum education and competency standards for personal advice”.

Mr Brycki said it was farcical that the current system allowed financial advisers to prey on consumers after undertaking little more than a three-week course. “The watered down FoFA provisions that allow bank staff to be incentivsed with sales-based bonuses to push consumers into bank products is only going to perpetuate the problem of low-quality, conflicted advice.”