A lot of consumers use banks because they are ‘secure’ but are they trustworthy and do they have their clients’ best interest in mind or their profit margins?
A 2018 report by The Australian Securities and Investment Commission (ASIC), revealed that bank-based financial planners overwhelmingly did not act in their customers’ best interests.
The banks in focus were:
• AMP: AMP Financial Planning Pty Limited and Charter Financial Planning Limited
• ANZ: Millennium 3 Financial Planning Pty Ltd and ANZ Financial Planning
• CBA: Count Financial Limited and Commonwealth Financial Planning Limited
• NAB: GWM Adviser Services Limited and NAB Financial Planning
• Westpac: Securitor Financial Group Ltd and Westpac Financial Planning.
The report revealed that 75% of the advice in files reviewed showed advisers did not demonstrate compliance when it came to acting in the best interests of their clients. The review also revealed that 10% of the customers would be left in a “significantly worse financial position”. There are two types of banks: mutual banks and a retail banks. Mutual banks include credit unions, mutual banks and mutual building societies.These are fully owned by their customers and are not listed on the stock exchange. Meanwhile, banks such as the Commonwealth Bank, ANZ, NAB and Westpac – also known as the big four – make up the retail banking sector. Retail banks are listed on the stock exchange and owned by shareholders, who are not necessarily customers of the bank.
A 2017 Roy Morgan report revealed that despite a generally upward long-term trend in satisfaction by the big four, from 55.3% in 2001 to the current level of 78.6%, they still lag behind the levels of the smaller banks. Among the ten largest consumer banks, Bendigo Bank had the highest satisfaction in October with 88.5%, followed by Bank of Queensland and ING both on 85.6%. The CBA remained the best of the big four with 79.5%, followed by NAB (78.2%), Westpac (78.1%) and ANZ (77.6%).
Credit unions provide banking and financial services to an estimated 25% of Australians. Credit unions are owned by their members, who are ultimately the customers of the credit union. Credit unions are nonprofit which means you are less likely to be stung with high fees, however most do charge a membership fee to compensate for operational costs.
While extremely similar to credit unions, building societies focus more on providing loans and mortgages. Building societies tend to be situated in rural and regional Australia, while credit unions are spread throughout the country.
Community banks provide banking services in rural areas. This is largely due to the bigger banks reducing their services in these areas. Community banks not only offer competitive rates and a personalised service but are committed to investing in their communities. The rise of online lenders Some customers are ditching their long-standing relationships with traditional banks in favour of online lenders.
The range of online small business lenders now includes Spotcap, GetCapital, SocietyOne, Capify, Prospa, Moula and OnDeck.
Noah Breslow, CEO of OnDeck, predicts this number will double in the coming years to meet demand.
The better deal
While profits made by big banks are largely paid out as dividends or reinvested, customer-owned banks use their profits to improve service and establish competitive mortgage rates. The Customer Owned Banking Association (COBA) maintains that customer-owned banking is the “fifth pillar” in banking after the ‘big four’ and provides necessary competition in the banking space. They also maintain that they have consistently offered better rates than the big four.
Force Financial Services are experienced mortgage brokers. We can help you with your mortgage needs and find a product that really suits your needs.