We have been working closely with ASIC to represent the views of the industry for many months and will continue to consult with Government as it begins the process of formulating policy on broker remuneration.
Firstly, we should acknowledge that this broker remuneration review process has been a well-informed and considered process. ASIC took the time to consult with the MFAA and a cross-section of the industry, and to ensure they understood the complexities of the home lending market.
We believe ASIC understands the value that mortgage brokers bring to consumers all over the country – and the Australian economy – and that brokers rely entirely on referral and customer relationships in building their businesses.
At all times, the MFAA has stressed to ASIC and the Government that brokers are supportive of increased transparency - and clarity on regulations - in the service of better consumer outcomes. Better consumer outcomes will continue to strengthen the sustainability of our industry.
We have also emphasised the value that brokers provide in Australia, and that incentives are a positive element of most industries and sectors. Our current incentive structure is part of the reason the broking industry is growing strongly and enjoying such strong customer satisfaction. As long as they promote competition and consumer choice, we believe they should be left in place.
Brokers are incentivised to behave responsibly and recommend suitable loans for consumers. At one end, brokers rely entirely on relationships and referral business, and at the other, they are subject to clawback and consumer protection legislation.
We have reviewed the report and its key recommendations, and while you may read some sensational headlines over the coming days, we are encouraged by the findings. While there are some references to conflict of interest, we will continue to work with the Government and ASIC to determine not whether these incentives could cause a conflict, but whether they are causing negative consumer outcomes.
There are several issues to highlight for our members:
Upfront and trail commissions: ASIC has recommended minimal changes to the upfront and trail commissions that are paid by lenders. This is appropriate, given they are clearly disclosed to consumers and are mostly uniform across the industry. These commissions allow brokers to provide invaluable service to consumers during the process of obtaining a mortgage, and for the life of the loan.
Volume-based incentives (VBIs): Overall, we believe the current remuneration framework generally incentivises the right behaviours and encourages competition and choice between lenders. VBIs are important for aggregators in funding critical compliance, training and IT functions that allow them to perform extensive administrative and other services on behalf of lenders, brokers and consumers, and should be retained.
However, the MFAA agrees with ASIC that any remuneration structure that undermines consumer choice and competition must be reviewed, and that VBIs should not be passed from aggregators and lenders to brokers (even though it is acknowledged that this practice is the exception rather than the rule).
‘Soft dollar’ incentives: As noted above, the MFAA believes incentives are appropriate in most businesses – and we believe the regulatory focus should be on what behaviours the incentive is driving, rather than the incentive itself. Rewards for driving volume for an aggregator across all products is appropriate because it does not diminish choice for consumers. However, the report is heavily focused on removing incentives to recommend specific products or lenders (thereby decreasing consumer choice), and so we believe any such incentive structures must also be reviewed.
Public reporting: We are pleased to see an extraordinary amount of data collected by ASIC for this Review, in an area that has previously not been extensively explored. The MFAA is broadly in favour of any measures that can help to drive greater consumer confidence in brokers.
The role of aggregators: As noted above, the MFAA supports transparency and disclosure in areas such as incentives and vertical integration, if they are in the service of enhanced consumer outcomes or healthy industry competition. However, we will be advocating strongly against any new regulatory requirements that place a heavy burden of compliance on our members without a clear link to a consumer benefit.
I believe these issues are the key areas of concern for the industry, and we will continue to advocate on your behalf with Government as the policy discussion begins.
A Government review such as this will always result in regulatory change. However, the MFAA has a voice at the table with Government, and the ‘coalface’ point of view is critical in the formulation of good policy, so discussion on these recommendations at MFAA National Forums, Regulatory Roundtables and other forums going forward will be critical in accurately capturing the views of the industry when advocating with Government.
We will continue to work with ASIC and the Government over the coming weeks and months, and will keep all of you informed of our progress.