I have to say I am getting a little tired of all the various industry bodies coming out and trying to defend their corner – Mortgage Brokers of course came in for some severe criticism in the Royal Commission, especially about conflicted advice in the context of commissions. Remember the bigger the loan they write, the more they get paid!
The latest is the FBAA. This from The Adviser.
The industry association has responded to a suggestion made by Commissioner Hayne that the payment of value-based commissions to brokers “might” be breaching NCCP obligations.
Executive director of the Finance Brokers Association of Australia (FBAA) Peter White has rejected claims made by Commissioner Kenneth Hayne in the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Commissioner Hayne alleged that lenders paying value-based upfront and trail commissions could be in breach of section 47(1)(b) of the National Consumer Credit Protection Act (NCCP).
Section 47(1)(b) states that licensees must “have in place adequate arrangements to ensure that clients are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by the licensee or its representatives”.
However, Mr White said that the interim report did not find any systemic evidence to suggest that conflict of interest in the payment of commissions to brokers directly disadvantages clients.
The FBAA director added that he believes licensees already have “adequate arrangements” in place to prevent conflicts of interest.
Mr White added: “The commissioner pointed out that a breach of the NCCP is not an offence or open to civil penalty.
“I would argue that the cancellation or suspension of a broker’s licence by ASIC is a substantial penalty in itself.”
Mr White also sought to dismiss concerns raised by the commissioner over the number of loans submitted via the broker channel with higher loan-to-value ratios (LVRs).
“It’s the broker’s duty to put the client’s interest first and to meet, if not exceed, their expectations,” the FBAA executive director said.
“In meeting client needs, brokers are often asked to source higher leverage loans to appropriately support their needs, taking into account a client’s debt levels and loan-to-valuation ratios.
“It’s a broker’s ability to source a specific loan product to suit their client’s specific needs that gives us a market advantage.”
Mr White concluded by stating that brokers were at the forefront of efforts to improve service delivery and remuneration structures.
The FBAA echoed comments made by the Mortgage & Finance Association of Australia (MFAA), which told its members: “The self-regulatory approach the industry is taking through the [Combined Industry Forum] remains the best way to improve customer outcomes, standards of conduct and culture, while preserving and promoting a vibrant and competitive mortgage broking industry that encourages consumer choice.”
Submissions in response to the commission’s interim report can be made on the royal commission website and must be received no later than 5pm on 26 October 2018.
The commission will release a final report, which will include the topics of the fifth, sixth and seventh rounds of hearings (focusing on superannuation, insurance and “policy questions arising from the first six rounds”, respectively) by 1 February 2019.
What exactly do you find tiring about it?
There are two main industry bodies for brokers, the FBAA and MFAA. It’s more efficient for them to be making submissions than all 16,000 plus brokers doing it individually.
If all lender employee and executive bonuses were removed, would the lender still have a direct financial incentive to offer as much debt to each applicant as can possibly be repaid?
The answer is yes.
Bank revenue is relative to the size of the debt taken on by the consumer.
With over 50% of loans originating via brokers and the market share of small lenders rising (contained in a chart in the first two background papers to the Royal Commission), it would be extremely profitable for the big four if mortgage brokers could be sidelined.
The small lenders can offer mortgage brokers upfront and trail commission on a similar level to the big four. Because of the similarity in the level of commission paid by the different lenders, brokers are free to focus on what products are most suitable for their clients.
If you are one of the big four and over 50% of new loans come through brokers and 70% of the brokers new deals come from word of mouth, should you focus on trying to offer a more competitive product or should you try and smash brokers? (Some of the big four have chosen to compete on the quality of their product offering).
https://www.dallett.com.au/blog/interim-report/
Funnily enough I am also tired of this topic. It’s never ending. There is a continual onslaught of bad decision making from Government, where not enough listening and thinking has occurred.
Cheers
David
What I am getting at is i) there is a place for brokers ii) but commissions need to be abolished iii) move on. Seems to me the industry has gotten into a doom loop, trying to defend the indefensible.
Why do commissions need to be abolished?
I haven’t see any argument in favour of abolishing commissions that is even remotely convincing.
It’s a distraction. If anyone wanted to reduce the number of borrowers who get maxed out when taking out a loan, then that should be the focus of the conversation.
Why would any lender bother to check a consumers living expenses after this Royal Commission has finished, given that the civil penalty is roughly $350 per home loan? (ASIC vs Westpac).