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With an election around the corner and both sides of politics trying to outdo each other, it could be that the Banking Royal Commission is set to be the first ever Royal Commission whose recommendations are fully implemented.

Without doubt much in the Royal Commission’s recommendations is going to have a serious impact on the financial services industry. It is all very complex and in looking at this I go back to a debate; think was held at the LSE some years ago. The question was, why do bankers earn more than nurses? There is a logical and credible argument that nurses create a lot more wealth than bankers do. The difficulty is in the metrics of measurement but the basic point was that nurturing a citizen back to health can deliver far greater economic benefits, to society, than anything a financial planner, banker etc could do.

In my view the Royal Commission may be the beginning of a paradigm shift, in that society is beginning to realise that financial planners, brokers and other so-called financial professionals are overpaid.

If the Royal Commission’s recommendations are fully implemented it will reduce the income of financial professionals. This is not necessarily a bad thing if it results in simpler advice and preventing advice being sold to people who do not need it. The economic modelling is really complicated but if, in the future, being a financial planner means you earn less the chances go up that you might do something else like become a nurse or a teacher. It is not all bad news if the new regime is transparent, financial products are not overly complicated and most importantly of all there are serious consequences for ripping people off.
And ripping people off is not just about a financial adviser giving dodgy advice. It is also about banks using computer algorithms and actuarial type techniques to analyse their customers behaviour, not to help them but to work out ways to make more money. Doing such a thing is fine if the customer benefits but often the banks are doing this knowing full well there is no benefit to the customer whatsoever. I believe it is this sort of thing that allows bankers to earn so much and it is this sort of thing that needs to be dealt with and shut down. It will hurt the financial services people as the reality sinks in that their earning capacity may permanently decline. No need to cry, however, there are many professions and job roles in Australia where hard-working Australians earn very little.