• Tristan Angelini

should investors worry about the royal commission?

Updated: Sep 11, 2018

You may have heard of the Royal Commission into banking, and you might be thinking if there’s anything you need to be worried about. Well, first and foremost, before jumping into conclusions, it’s important to understand what it really means. How will the royal commissions impact on Australians and their wealth? Here are some of the important information regarding it, as we have gathered so far.

What is the Royal Commission?

In late December of last year, the royal commission was established to investigate Australia’s biggest activities specifically whether they have, in any way, engaged in misconduct that would warrant legal proceedings. There have been talks about major banks engaging in illegal activities such as bribery, forged documents, issues regarding verification of customer’s living expenses before lending, and approving insurance even though there is no proof of the customer’s capability. Unfortunately, all these talks are not just “talks”, there are some pieces of evidence found.

According to The Guardian, one of the banks that admitted to engaging in misconduct was AMP, and admitted to lying to regulators, while the Commonwealth Bank admitted that some of the bank’s financial planners actually charge clients who have passed away. Australia’s major banks have been looked at because how much they have power over the financial system, mainly because they hold some of the nation’s biggest companies. And over the past decade, these banks have been facing scandals, particularly Commonwealth Bank, which exactly forced the Senate inquiry and established the Royal Commission.

How Is This Going to Affect Consumers?

Banks have always been providing financial advice to consumers, and this has been considered incredibly lucrative because if their financial advice actually worked, they could also sell financial products. This type of business model is called vertical integration.

So how does royal commission into banking actually affect customers?

The amount of scandal Australia’s banks are facing right now are enough to worry a lot of people who wish to invest in something. The behavior and the poor financial advice provided by these bank employees really affected a lot of customers and banks have a responsibility to be as truthful as possible.

Millions have been paid in remediation to consumers that were provided with poor service in connection with car loans and credit cards. At first, a lot of people didn’t respond well to the royal commission, but after proving its necessity, more have really warmed up to the idea. So, for the rest of the year, there will be run through with the final report in February next year.

Now, should property investors and shareholders really worry about this?

It’s important for any property investor and shareholder to really trust the process. Sure, this scrutiny will most likely reduce the borrowing capacity from banks, and possibly, mortgage repayments will be higher, but I believe that what royal commission does is to slowly, make things better for everyone and hopefully restore our faith. Anyway, if you want to invest where there is lower risk, choose affordable areas like the suburbs in Hobart and Melbourne where they are enjoying growth not just in population but in the economy as well.

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