AFG’s CEO points out that “broader consideration” is required on any type of wholesale changes to broker remuneration to protect the industry, maintain competition, and boost the longevity of this sector.
Home buyers look to mortgage brokers to help them find the best loans and solutions to fit their financial needs. According to AFG’s CEO, David Bailey, radical changes to broker remuneration would hurt all mortgage holders. This includes flat fees or fees for service models.
The CEO explained to delegates that even though the broker industry needs “additional regulatory oversight”, there is no need for massive changes to broker remuneration.
Mr. Bailey told the Adviser, “I think there should be a broader consideration of what changes to a broker remuneration model would to the broking industry, and the impact it may ultimately have on consumers should a remuneration model be introduced which makes it sub-economic for brokers to exist. The only outcome for that would be a reduction in broker numbers and ultimately the consumer would be worse off.”
He explained, “Brokers bring competition and choice to the marketplace. They also bring clarity around a very difficult market to understand. If they are not there helping the consumer, who is?” That’s true. Where would home buyers and investors turn to get the best mortgage solutions without brokers?
Boosted Bank Power Would Lead to Less Competition
Competition is one of those elements of life that makes the world go around, which is especially true in the broking industry. If the now viable broking industry were to disappear, the four big banks would have power and control once again. There would be no competition, therefore no choices for buyers, sellers, or investors.
This kind of change would turn things upside down, impacting the entire marketplace competition, which would lead to worsened outcomes for consumers and likely ridiculously high interest rates compared to current rates. That’s how the lack of competition would affect the Australian housing market. This problem would affect any housing market.
ANZ’s CEO, Shayne Elliott says that there are conflicts of interest and a lack of good incentive schemes in the broking industry that requires whole-industry reform as a resolution. Mr. Elliott says that ANZ does not have an official position regarding this topic, but that he would certainly support the idea if industry stakeholders proposed such a move.
Elliott said, “The market itself will not resolve the issues around the potential conflicts or poor incentive structures, so we need to sit down as an industry with our regulators and come to a conclusion. If that means flat fees, that’s fine. We have no particular opinion on that.”
Mr. Bailey disagrees with the idea of flat fees because of the issues that concept causes. Consequently, the Combined Industry Forum is currently reviewing the flat-fee model.
Bailey said, “ASIC has spent a significant amount of time looking at the broker remuneration model and came out and said that brokers provide consumers with good outcomes and the model is not broken., it just needs some tweaks. That is what the Combined Industry Forum is doing. It is considering those recommendations by ASIC. So, any calls of completely overhauling the broker remuneration model do a fly a little bit in the face of a significant body of work by the main regulator.”
ASIC & CIF
The AFG CEO believes that the Combined Industry Forum (CIF), which represents the whole industry, has been charged with taking the ASIC recommendation under consideration, is the appropriate forum for this issue. He feels they will be able to come up with the most viable models, taking into consideration all the options and how the recommendations impact the industry as a whole.
He said, “I think the CIF has been charged with looking at the alternatives, and AFG will engage continually with the CIF to ensure the best possible outcome, at the end of the day, for the consumer.”
“The irony of all this is banks reward customers for larger loan sizes and give discounts…I don’t think that’s been addressed yet,” he said at the Macquarie event. “Brokers wouldn’t account for 55 per cent of flow if customers weren’t getting a good outcome,” he explained.
Brokers Should Keep Doing Their Jobs as Usual
Mr. Bailey feels that for now, brokers need to continue doing what they do by serving the consumer to ensure they get the best solutions for mortgages. What is best for the consumer is the primary focus, so there is no need for brokers to back off what they are doing now to be helpful.
It is important to note that there are numerous ongoing reviews and commissions to be finalised related to broker remuneration. According to Bankwest, they are “implementing changes to its commission model for their brokers and adopting recommendations of the CIF which will be effective as of 1 July 2018.
First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370