Inquiry another blow to consumer trust
One of the biggest problems facing New Zealand’s financial services sector is a lack of consumer trust. We don’t have as much insurance as we should, because people are sceptical of being sold policies they don’t need by advisers who are incentivised with glitzy overseas trips.
We suspect KiwiSaver providers have an agenda when they ask us to think about increasing our contribution rate.
We worry that mortgage brokers are placing our business with the lender that pays them the best commission, not the one that suits our needs.
This means many of us do more poorly over the course of our financial lives than we should, because we don’t engage with all the good that the sector could do for us, too.
Last week’s Reserve Bank and Financial Markets Authority report on life insurance found that insurers were putting profits ahead of consumer outcomes. To many people, it just reinforced their views about the industry.
Now Australia’s damning royal commission of inquiry into misconduct in the banking, superannuation and financial services sector has dealt the financial world another blow.
Some of the parent companies of New Zealand banks could end up facing civil and criminal prosecution over the behaviour uncovered by the investigation – including charging clients for advice they never received, insurance premiums taken from dead customers and firms lying to regulators.
‘‘Saying sorry and promising not to do it again has not prevented recurrence,’’ said the inquiry’s commissioner, former High Court of Australia judge Kenneth Hayne.
He recommended sweeping changes for Australia, such as removing trail commission for mortgage brokers and reducing the cap on life insurance commissions ultimately to zero.
Finance Minister Grant Robertson says the New Zealand Government will watch the outcomes of the report closely. But he says the sector is already ‘‘on notice’’ in this country and is tackling the issues.
Hayne says the Australian sector will have to change. ‘‘The damage done by that conduct to individuals and to the overall health and reputation of the financial services industry has been large,’’ he said.
‘‘The time has come to decide what is to be done in response to what has happened. The financial services industry is too important to the economy of the nation to allow what has happened in the past to continue or to happen again.’’
There’s no doubt that the New Zealand sector must show it has taken action, too. Even if that same behaviour did not happen here, they cannot afford to look complacent.
Banks and other financial services providers control so much of our daily lives.
It’s an industry in which many consumers don’t fully understand the products they purchase. If there’s no trust, New Zealanders will disengage further – and we’ll end up even less insured, and even less prepared for retirement.
The sector must work out, and quickly, how to show Kiwis that it deserves their faith – and the $5 billion or so the big banks send home to their owners from this country every year.
We’ve called them ‘‘too big to fail’’ in the past, but they’re not too big to clean up their acts for the good of the little guy.