More from MPA’s Otiena Ellwand on the Royal Commission.
With the royal commission’s first round of hearings now over, industry leaders have taken a step back to assess what happened and how the latest revelations will impact the third-party channel.
The commission covered a lot of ground over the last two weeks examining the banks and their dealings in the home loans sector, and brokers are a big part of that. The commission identified issues with how household expenses are verified, questioned CBA about its broker accreditation process, scrutinised upfront and trail, and zeroed in on Aussie Home Loans for broker misconduct.
There’s no doubt that brokers will be included in the interim report due by the end of September. So what should brokers know and takeaway from what just happened?
Higher expectations for living expenses and trail
Connective’s group legal counsel, Daniel Oh, said living expenses and how they’re verified will be heavily scrutinised following the royal commission’s examination of ANZ. During that hearing, it was revealed that ANZ failed to follow processes to verify customers’ financial situations. Stating living expenses at or below HEM can no longer be a mechanical process on loan applications, he said.
“You need to ensure that you have done the work to verify and have the necessary evidence to support this figure. If the figure is at or below HEM, expect greater scrutiny,” Oh said.
On trail, Oh expects that at a minimum there will be more scrutiny as to what brokers do post-settlement to justify their earnings.
“Our position on the topic is that you should speak or meet your existing clients at least once a year, if not more, to ensure that client’s needs continue to be met.”
Customer at the centre of everything
William Lockett, managing director of Specialist Finance Group, said the most important takeaway from the royal commission is to always ensure that the customer and their needs are the sole focus of the bank, financial planner or finance broker.
Banks and brokers need to work more constructively together to ensure they are achieving the best outcome for the consumer, he said.
But he also said both need to fess up if they’re at fault. “Banks also need to take sole responsibility for their own failings and shortfalls and likewise finance brokers need to do the same.”
Both groups also need to embark on a mission to restore trust with customers.
“All parties within the financial services industry should continue to look at improving their business model and how they engage with all other parties and ultimately the consumer,” he said.
Accountability and transparency need to be restored
Peter White, executive director of the FBAA, said the banks need to be completely transparent about the issues being revealed at the royal commission and then put positive actions in place to remedy them.
“It doesn’t matter how big you are or how well recognised your brand is, you are accountable for your actions every single time.”
“Also as much as there are issues on our own doorstep, the banks need to make some serious cultural and process changes and ensure those who should be are held very much accountable,” White said.
What’s next for brokers and banks?
Influenced by the quest for ever greater profits, cultural norms in banking have strayed too far from good customer outcomes, and as a result, some households are in strife, said Martin North, principal at Digital Finance Analytics.
The royal commission has and will continue to examine the root causes of this— some of which have been known for a long time— but North said it seems “we need considerable changes”.
“I also feel that the role of brokers will change on the back of this – still a role for them – but on a different basis. Also it raises questions about vertical integration.”
North believes there is still more to come out, and that the focus will be on the cultural practices and remuneration models of the executives in these banks.
“There has been a credit fest, and it’s time for this to be normalised. Regulators were also asleep at the wheel and only reactive to events as they appeared. No one is the customer’s champion – that’s what we need.”
