It is astounding how little competition really exists in financial services and appalling that it's costing consumers billions of dollars a year. It was a mistake by the Government and the Australian Competition and Consumer Commission to allow the big banks to gobble up the smaller lenders and their wealth management arms.

The theory underpinning regulation of the financial services is that informed investors will favour the better providers of financial products and services and that competition will drive prices down. Much of the consumer protection rests upon adequate disclosure of relevant details of the product or service. In reality, there are many ways providers can obscure important information to all but the most determined of consumers.

Financial products are inherently complicated and disclosure documents, after being worked upon by marketers and lawyers, can easily be made to bamboozle rather than enlighten consumers. Unlike goods on the supermarkets shelves where comparisons on price are relatively easy, financial products generally promise a future benefit. They promise home ownership; that debts will be covered in the event of death and a comfortable retirement. They are difficult to compare, which is why they tend to be sold by intermediaries rather than bought directly by consumers. But the role of the intermediary is seldom independent.

Late last month, Roy Morgan Research released a report showing financial planners linked to the big financial institutions tend to recommend the superannuation funds of their parent companies.

The report found that, for the four years to June 2009, the proportion of planner sales of their own super products was about 80 per cent for AMP and AXA and about 70 per cent for Westpac/BT and CBA/Colonial First State.

Commenting on the report, Michael Peters, a lecturer in business law at the UNSW's Australian School of Business, says: “The enormous range and complexity of the products means that independent accurate advice is more important today than ever before. "Advisers who can make sense of the offerings on behalf of their clients is a much needed reform. Otherwise, the financial planning industry is destined to be little more than the marketing and selling arm of the wealth management product suppliers."

This is an important issue of public policy, especially as the big four banks have markedly increased their market share across just about all financial product categories, particularly since the onset of the global financial crisis two years ago.

About 90 per cent of new mortgages, for example, are being written by the big four compared with about 60 per cent before the global financial crisis. And their mortgages are far from the most competitive. In another recent report, financial products researcher InfoChoice says the reluctance of consumers to search for the most competitive banking deal is costing them $6.1 billion each year.

InfoChoice says if customers switched to the lowest priced products available, they would make an average annual saving of $5.4 billion on home loans, $257 million on credit cards and $482 million on other financial lending, including car loans.

“When looking at the complete cost of banking, including things such as service and transaction fees, ATM fees and interest rates, the major banks come out far more expensive than other, smaller lenders,” says the InfoChoice chief executive, Shaun Cornelius.

“By simply moving to the lowest priced products in each category, a big-four customer could save more than 19 per cent, or $3800, on their annual banking costs," he says. “The real anomaly is that while the major four banks offer increasingly less competitive products, they continue to increase their market share.”

Alternative providers of mortgages, financial advice and funds management have been bought up by the big four over the past decade. It took years for these smaller players to build their businesses to a scale that put the big four under competitive pressure.

The big four dominance could easily last a decade with consumers continuing to pay too much for financial products and services while helping the big four to grow their profits beyond the combined $10 billion a year they already generate.