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Are banks and insurance companies set for a shock in 2014?

Many readers may have experienced some inequities in the financial advice industry and have wrested back control by setting up their own self-managed superannuation funds (SMSFs). In short, truly independent advice is rare.

Australia’s last financial system enquiry was 17 years ago and altered the financial landscape dramatically. Set up by Treasurer Joe Hockey, the latest financial system enquiry has the power to alter the landscape for banking and insurance in 2014.

As a result of the enquiry, products including home loans, retirement savings, insurance and bank deposits may be impacted, according to a report in Melbourne’s Age newspaper. This would endanger the collective annual profits of just under $30 billion garnered by Westpac (ASX: WBC), NAB (ASX: NAB) ANZ (ASX: ANZ) and Commonwealth Bank (ASX: CBA). So in the tradition of keeping your enemies close, these banks are fully supporting the enquiry. At the same time they will enlist powerful lobby groups to maintain the status quo.

The enquiry could also be of great significance for insurance industry giants such as Insurance Australia Group (ASX: IAG), Suncorp (ASX: SUN), AMP (ASX: AMP) and QBE Insurance (ASX: QBE). The government is concerned about soaring premiums and that many people living in areas with high risk of flood or fire are unable to obtain any cover. These issues of availability and price suggest the insurance market is becoming unworkable.

The enquiry may also impact those institutions that don’t take deposits such as non-bank lenders that are currently not regulated by the Australian Prudential Regulation Authority (APRA). One such stock in this category is Yellow Brick Road (ASX: YBR), which is now being financially backed by Macquarie Holdings (ASX: MQG).

Foolish takeaway

Given the impact of the previous enquiry and the heavyweight panel led by former Commonwealth Bank boss David Murray, it is difficult to dismiss potential impacts on both banks and insurance companies.

However, lobby groups acting on behalf of the financial services industry are currently seeking to reverse reforms implemented by the previous government, designed to slash the billions in commissions currently being received. If they are making headway in re-asserting conflicted advice, any outcome for this enquiry is possible.

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Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.