When major banks were questioned on why they are doing away with measures that protect consumers at the Senate Standing Committee on Economics hearing on 29 August 2024, they pointed to mortgage brokers, claiming they had an unfair advantage, hence the move away from self-regulatory measures
These claims lacked nuance and skipped over the many ways mortgage broker remuneration is highly regulated and, importantly, how mortgage brokers are held to a higher regulatory standard than bankers.
In her response to the statements made at the hearing, MFAA CEO Anja Pannek clarified why comparing broker commission and banker bonuses is flawed and misleading. Here is the full statement:
Statements at the Senate Committee hearing from major banks on broker commissions were, more than anything, convenient opinions couched as facts. I doubt anyone in the mortgage broking industry was surprised.
The failure of banks to uphold their commitments on banker remuneration made in response to the Sedgwick review, justified as a need to remain “competitive” and “manage risk” is at best self-serving and at the very worst, misleading.
Contrast this with the mortgage broking industry that has not only proactively stepped into self-regulation in response to ASIC’s broker remuneration review in 2017, but further embraced and embedded subsequent regulatory changes.
Mortgage broker remuneration is regulated under law, banker pay is not (or even under self-regulation apparently).
There are checks and balances on broker conduct – through licenses, aggregators and by the risk teams within lenders themselves.
Absent also from the commentary was the requirement for brokers to comply with the conflict priority rule. Nor was there any mention of commissions paid net of offset, or the banning of volume-based bonuses, soft dollar payments and other incentives. And, where was mention of the self-regulatory regime that includes clawbacks or the legislative prohibition on brokers to pass clawbacks onto clients? All of these measures act as checks and balances on broker commissions.
A short history lesson may also be in order for lenders on what was actually in the Sedgwick report.
The Australian Banking Association (ABA) commissioned Mr Stephen Sedgwick AO in 2016 to undertake a large-scale review of remuneration practices for frontline retail banking staff. This review, delivered in 2017, recommended comprehensive reforms and outlined a three-year process for banks to implement the reforms.
The ABA then subsequently commissioned Mr Sedgwick in late 2020 to undertake an independent assessment of the scale and effectiveness of implementation of the reform program, with the CEO of the ABA Anna Bligh noting when this report was finalised “This final review by Stephen Sedgwick clearly demonstrates that banks have kept their promise to stop poor remuneration practices and put the customer first”.
While Sedgwick’s interim report may have advocated for a lender paid fee for service model, his final report made no mention, instead focusing on other aspects of ASIC remuneration reform recommendations, all of which were implemented by the mortgage industry through self-regulation.
As to the level of risk posed by loans written by brokers versus lenders – we can point to the extremely low AFCA complaints related to mortgage brokers, and the continued customer satisfaction that the industry brings, demonstrated by increasing market share.
Also, to compare broker commissions with the salary and bonuses of bankers is like comparing apples with oranges. Broker commissions are not a salary, they are business revenue. Out of their commissions a broker pays for the costs of running their business, all costs that a banker does not incur.And when it comes to “caps on commissions” that’s akin to saying that a lender’s revenue should be capped, that the manufacturer of a product should be allowed to dictate the amount of revenue distributors of its products can make.
While there was some acknowledgment in yesterday’s comment of a mortgage brokers' obligation to act in their clients' best interests at the Senate hearings, there was no mention of lenders lacking the same duty to clients.
Let’s call the commentary for what it is – a deflection against regulatory and parliamentary scrutiny and a fear of the competition that brokers bring to the mortgage market which translates to better outcomes prices for consumers.
Ultimately Australians have choice. And we know who they are choosing.
In the media:
Brokers unload on CBA’s Comyn over pay
AFR
1 September 2024
(This story is behind a paywall)
Major bank CEOs slammed for calling for cap on broker commissions
The Adviser
30 August 2024
LMG, industry hit back at CBA, Westpac over broker pay
The Adviser
30 August 2024
