There is no law against providing lousy financial advice, but there ought to be, and the first person investigated should be the man in charge of Australia’s finances, Wayne Swan.
In fact, any inquiry into what Australia’s Treasurer has been saying about swapping banks should start with a look at whether Mr Swan is providing financial advice and, if so, is he licensed to do so?
The question of whether Mr Swan is advising people to make a financial decision is probably a red herring, and of less importance than the fact that he was just plain wrong in the advice he was giving.
The Treasurer started his bank bashing last week when it became clear that Australia’s banks were about to break with tradition and not move their home loan mortgage interest rates in harmony with the Reserve Bank’s cash rate.
Homeowners, Mr Swan said, should: “walk down the road” to get a better deal on their mortgage if unhappy with their bank.
There’s nothing wrong with saying that, if it is general advice and not specific to a single customer. It’s what licensed investment advisers tell their clients on a daily basis.
The problem for Mr Swan is that while he might have thought a walk down the road was a good idea, he wasn’t looking at what awaited the customers who made that decision.
Consider first the sequence of events, and then the failure of the Treasurer to acknowledge that Australia’s banks do not raise all of their money to advance as mortgages inside Australia, which means they are exposed to the ill-winds of international financial markets.
First bank off the rank was ANZ with an increase of 0.06 per cent (six basis points) on its variable mortgage rate, to which Mr Swan gave his memorable advice: “walk down the road”.
Well, anyone who took that advice and went to the pain of swapping their ANZ mortgage with one at Westpac would have found that their new bank had just raised its rates by 0.1 per cent (10 basis points).
Undeterred, Australia’s finance supremo repeated his recommendation to walk down the road, though even he must have been a little dismayed to discover that National Australia Bank then went up by 0.09 per cent (nine basis points), Commonwealth Bank lifted its rate by 0.1 per cent (10 basis points), and Bendigo and Adelaide went up by 0.15 per cent (15 basis points).
By now, in theory, there should be bank customers walking up and down the road looking for the best deal, with the most annoyed of the throng being those who used to bank with the ANZ because if they had stayed put, and ignored Mr Swan, they would have been hit with the smallest increase.
This exercise in examining what Mr Swan said, and comparing it with what happened, is pointless – just as his advice was, and remains.
Mr Swan’s problem is that not only has he failed to acknowledge that Australia’s banks raise around half of their funds in the international market, but he now looks to be the Treasurer that everyone ignores.
Whether he was bank bashing, or simply providing lousy financial advice, what Mr Swan did was remarkably foolish and can be clearly seen as an attempt to win domestic political support from a complex set of events.
As for home buyers who do shop around in pursuit of the cheapest home mortgage, it might be wise to look closely at who you’re doing business with. There are two reasons for saying that.
Firstly, Australian financial history is littered with financiers who “bought” business with cheap loans, only to fail in tough times, or to increase interest rates savagely once the customer is hooked.
Secondly, there was wonderful cheap-loan scheme invented in the U.S. about 20 years ago called sub-prime mortgages – and if you don’t know where they led you’re as bad at understanding international finances as Wayne Swan.
