The Mortgage & Finance Association of Australia (MFAA) has expressed broad support for the key policy recommendations made in ASIC’s report on its Review of Mortgage Broker Remuneration, which was released today following more than 12 months of consultation and research.
The Report has recommended to Government that the framework for the industry’s incentive structure should be left in place. However, there were several key focus areas that ASIC has recommended be reviewed with a view to formulating policy and regulatory changes.
MFAA Chief Executive Officer, Mike Felton, acknowledged that ASIC’s process had been well-informed and consultative.
“We have been working closely with ASIC to represent the industry on behalf of our 12,900 members, and we appreciate the level of consultation with industry to understand its complexities and the value that mortgage brokers bring to consumers, and to the Australian economy,” Mr Felton said.
“We have continued to reinforce to ASIC that brokers drive competition and provide a critical service to consumers that combines choice, expertise and convenience, to help them make informed choices and get the most appropriate deal. Brokers rely entirely on referral and customer relationships in building their businesses, and are incentivised in a number of different ways that drive good consumer outcomes.
“The MFAA is supportive of increased transparency and clarity on regulations in the service of better consumer outcomes – this can only continue to strengthen the sustainability of our industry.”
The MFAA broadly supported some of the Report’s key recommendations, which included the recommendation that so-called ‘upfront’ and ‘trail’ commission be largely left untouched.
“We believe it’s appropriate to leave the current structure of commissions in place, given they are clearly disclosed to consumers and are mostly uniform across the industry, meaning they don’t incentivise brokers to recommend one loan over another. These commissions allow brokers to provide invaluable service to consumers during the process of obtaining a mortgage, and for the life of the loan,” Mr Felton said.
However, the Report also contained several findings which have caused the MFAA to urge caution, given that many of the findings recommended further study to see if perceived conflicts of interest were actually resulting in poor consumer outcomes.
“While this Report refers to the potential for conflict of interest with regard to some of the incentive structures in use today, we will continue to work with the Government and ASIC to determine not whether these things might cause a conflict, but whether they are actually causing negative consumer outcomes,” Mr Felton said.
The Report also acknowledged that volume-based bonus commissions and bonus payments do not necessarily cause poor consumer outcomes, but nonetheless raised concern about these incentives.
“The Report has recommended as a general rule that the industry moves away from volume-based incentives, or VBIs, and ‘soft-dollar’ incentives. Again, we accept that some change may be needed, as long as the regulatory focus is on what behaviours the incentive is driving, rather than nature of the incentive itself,” Mr Felton said.
“Incentives that reward strong performance are a positive element of most industries and sectors, as long as they reward the right behaviours, and do not diminish competition.
“The MFAA acknowledges that any remuneration structure that undermines consumer choice and competition must be reviewed. While we have seen little evidence of VBIs being passed from aggregators and lenders to brokers, we do not support this practice. Similarly, while we are broadly supportive of ‘soft dollar’ incentives to reward high-performing brokers, any incentive that could encourage brokers to recommend specific products or lenders must be looked at.
“We strongly believe the current structure incentivises the right behaviours and encourages competition and choice between lenders – and volume-based incentives allow aggregators to fund critical compliance, training and IT functions that allow them to perform extensive administrative and other services on behalf of lenders, brokers and consumers. We believe these incentives - as long as they are not passed on to brokers and do not limit competition and choice - should be retained.”
The ASIC Report also outlines recommendations concerning public reporting and the role of aggregators, calling for greater transparency and a stronger focus on the principle of obtaining good consumer outcomes as a guiding factor in the design of all remuneration arrangements.
“The MFAA was pleased to note that ASIC had reviewed an extraordinary amount of data for this Review, in an area that has previously not been extensively explored. We will always support any measures that can help to drive greater consumer confidence in brokers,” Mr Felton said.
“However, while the MFAA supports transparency and disclosure in areas such as incentives and vertical integration in the service of consumer outcomes and competition, we will be advocating strongly against any new regulatory requirements that place a heavier burden of compliance on our members without a clear link to a consumer benefit.
“We also believe that any action to adjust the current remuneration structures needs to continue to be made with the consultation and understanding of all participants within the value chain.
“We have advocated strongly on these and a range of other issues, and we will continue to consult with our membership and present the industry’s view as the Government begins to formulate its policy recommendations.”
The MFAA is currently consulting with its members, including mortgage brokers, aggregators and lenders, before beginning the process of consulting with Government on the formulation of policy.