From Mortgage Professional Australia.
Banks will be free to take their own approaches to broker remuneration after the Australian Bankers Association abandoned a key part of the Sedgwick Review.
Originally the ABA set out for banks to collectively develop “guiding principles” for the way banks remuneration brokers and their own staff. However, the preparation, consultation and finalisation of guiding principles will no longer take place, according to an update on the ABA’s work by independent but ABA-commissioned reviewer Ian McPhee.
Each bank will instead develop its own approach to commission, a move receiving scathing criticism from McPhee: “In taking this decision to vary its implementation plan, the industry has forgone the opportunity to establish guiding principles and demonstrate strong leadership in this area which has traditionally had a high profile, by building on the momentum for change stimulated by the Sedgwick Review and ASIC’s review of mortgage broker remuneration.”
Banks have also dropped their original plan to work directly with legislators to change broker remuneration, McPhee reported. Instead, they will work with brokers within the Combined Industry Forum and “proceed without the need for regulatory or legislative intervention to achieve the outcome of improved payments and governance practices.”
Clearing the path for the Combined Industry Forum
McPhee’s finding that the ABA has effectively sidelined its own report represents a huge victory for brokers.
Sedgwick recommended ‘guiding principles’ which included decoupling remuneration from loan size and bringing broker governance in line with that of retail bank staff.
Furthermore, Sedgwick recommended banks implement these changes by 2020, putting banks on a completely different timeline to that adopted by brokers and the Government following ASIC’s separate remuneration review.
Now banks can develop their own principles for remuneration, they will be free to take pragmatic approaches to commissions which better meet brokers’ expectations. It also opens up the intriguing possibility that banks who are more reliant on brokers – such as the non-majors – could adopt more generous remuneration arrangements than those with larger direct channels.
The signs of division
MPA reported earlier this week that the Sedgwick’s proposals could soon be buried by the banks.
The first signs of division emerged during the Treasury’s consultation process following ASIC’s Review, where different banks took very different views to those expressed by Sedgwick.
Westpac explicitly criticised the use of flat fees, noting: “a flat fee commission structure could prompt an increase in split banking as brokers seek to maximise income by submitting smaller deals.”
The final straw may have been the announcement that ANZ CEO Shayne Elliott would be the ABA’s next chairman. Elliott told the House of Representatives last week the commission changes were ‘complicated’ and needed more work: deputy CEO Graham Hodges added that “the devil’s in the detail because clearly, it’s going to affect thousands of brokers.”
