Roskow Blog

I was listening to Scott Pape's (The Barefoot Investor) radio program last Saturday whilst painting our wardrobes.

Scott's program is easy listening because it's low on jargon and he simply features caller after caller asking questions.  One of the last callers was a dear old lady (it's safe to assume she was over 60) who was calling to discuss First Home Saver Accounts (FHSA) for one of her grandchildren.

She called to say that she hadn't started one for her grandchild because none of the Big 4 banks were offering them and called to ask why this was the case.

Before Scott could utter a word I yelled out "Because they can't make enough money off them" to show my wife how smart I am (she's very used to it) and picked up the phone to try and get through to Scott to share my view.

Scott has a 1 hour time slot which starts at 11am and 12pm was fast approaching.  There was a line of callers so I didn't get through, but I am going to call Scott tomorrow to try to make this point:older generations are still in the (bad) habit of trusting the banks.

The reality is this: the products the big four banks offer, be it investment, superannuation, insurance or First Home Savers Accounts are not the best options out there because their fees are too high.  The additional fees you pay compared to other options is all about their branding; the perceived "secure" element that "it's as safe as a bank".

But this isn't the case.

During the global financial crisis when the Australian Sharemarket dropped almost 40%, the banks products did too.  In fact their own share price probably dropped somewhere near this as well.  If anything, due to their higher fees if you had your funds invested in the bank products they would have dropped slightly more; and when the markets go up you get slightly less because you're paying for an additional security blanket.

Back in the day when the bank manager knew your name and getting a home loan was a privilege, not something they're begging you to do (as is the case today) I'm sure the level of trust and faith in the banks was much better than it is today.

The world has changed and this caller hasn't changed with it.  She only trusts the banks and won't take action unless it's with them.  What she doesn't understand is the banks are no longer a good option, there are much better options out there.  She may be so set in her ways that it will be too hard for her to change her mindset on this, but the sooner that this perception is changed the better in my view.

If I get through to speak to Scott tomorrow I'm going to suggest that the lady look at Members Equity (www.membersequity.com.au).  Members Equity is the bank that services all the industry superannuation funds.  Their fees are low and their values are far more aligned to the interests of you and me, not generating profits for shareholders.