From Mortgage Professional Australia.
Consumer group sets out views on remuneration, soft dollar benefits and ‘not unsuitable’ obligations in exclusive interview with MPA
Brokers remuneration is “adding fuel to the fire” of Australia’s overheated housing markets and “needs to change”, according to consumer advocacy group CHOICE.
In a frank interview with MPA, head of campaigns and policy Erin Turner said that ASIC’s Review into mortgage broker remuneration showed how percentage based commissions encouraged consumers to take out bigger loans, putting them at risk: “we’re definitely taking a position that the current structure is unsuitable and it needs to change.”
Turner praised reforms in the financial advice sector, where commissions have been banned, whilst noting that may not be the solution for broking. However commission is just one of several issues exposed by ASIC’s review, according to Turner: “I know there are some parties that are saying the sector only needs tweaks. I worry about that spin: I think the message brokers need to hear is this report is significant, this report has many major findings that the outcome this sector is delivering to consumers isn’t ok…we’re not talking about a tweak: we’re talking about reform”.
Soft dollar and volume-based incentives have come under fire from many, although CHOICE is not entirely opposed: “obviously there are some things that are perfectly balanced: education – and we’re not talking about an education cruise in the Caribbean for high-performing brokers – but genuine education programs.”
ASIC’s review also found instances of broking franchises sending disproportionately high numbers of loans to the lenders that owned those franchises, naming CBA-owned Aussie Home Loans and NAB’s aggregators. Turner suggested that, rather than through increased disclosure, such problems of vertical integration could be tackled by raising the obligations upon brokers.
“We have to lift the obligation on brokers and I’ve been surprised how open some consumers are to discussing this. A ‘not unsuitable’ loan isn’t what consumers expect they’re getting and I don’t think what a lot of brokers think they’re giving either”
CHOICE also called for more transparency of referral networks and broker cross-selling, possibly through ASIC’s separate shadow-shop of mortgage brokers later this year. CHOICE will be setting out their views and potential solutions in a submission to the Treasury by the end of June, after which the government will determine which suggestions become law.
