ASIC remuneration review has limitations, say broker associations

by Miklos Bolza20 Mar 2017
Recommendations made by the Australian Securities and Investments Commission (ASIC) in its Review of Mortgage Broker Remuneration have been generally praised by leading figures in the industry.

However, both broker associations have issued words of caution about how the regulator and government should proceed.

Focusing on the right areas

Mike Felton, chief executive officer of the Mortgage & Finance Association of Australia (MFAA), said that he broadly supports some of the report’s recommendations, including that upfront and trail commission largely remain untouched. Despite ASIC mentioning changes to the standard commission model in its first proposal, Felton said brokers should not be concerned, pointing to ASIC's wording that it only plans to tweak or "fine tune" the commissions.

“There is certainly no talk about standardising or capping,” he told Australian Broker in an exclusive interview on Friday. “We don't see that they're really going to get too involved in changing those core structures. We see upfront and trail continuing to remain as they are, and fundamentally that is good for industry. We believe that ASIC has found that upfront and trail are not driving sub-optimal outcomes for consumers therefore there's no reason to adjust them.”

However, he urged caution on several of the report’s findings, pushing for further study to see if perceived conflicts of interest actually resulted 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,” Felton said.

Responding to the recommendation that the industry move away from volume-based incentives (VBIs) and soft dollar incentives, Felton said he accepted that some change may be required as long as the focus was on the behaviour that the incentives were driving rather than the nature of the incentive itself.

“The MFAA would argue very strongly that both volume bonus and soft dollar do have a place [in the industry] provided they are not diminishing consumer choice in any way. We believe volume bonus going through to an aggregator level and held there seperate from where the lender recommendation is made at a broker level would not in any way be conflicted or if it was paid but for volume across the entire lender spectrum on the aggregator's panel and products.”

The MFAA is presently consulting with its members, including brokers, aggregators and lenders, prior to sitting down with the government on how to formulate future policy.

“The industry needs to work with the regulator to come up with a balanced scorecard that makes sense,” he told Australian Broker.

A question of data

The Finance Brokers Association of Australia (FBAA) also expressed its support for the report, saying it was positive for the industry and an endorsement of the FBAA’s position and public comments.

“In general it is a very good report and supports what I have said for the past twelve months or more in that base-line commissions are perfectly responsible in our market place and they should not change, while incentives that promote volumes risk poor consumer outcomes and must go,” said Peter White, executive director of the FBAA.

However, he questioned whether some of the data goes far enough to form conclusive outcomes and recommended that this question be pursued further.

“There are a couple of such matters that we have already raised and will be further discussing with Treasury,” he said.

The FBAA will sit down with ASIC on several fronts and is formulating its response to the government in conjunction with input from members and key industry stakeholders.

“We look forward to further discussions with Treasury and we continue to be confident in the positive and sound position brokers’ value-proposition holds for borrowers,” White said.
 
“For now we need to absorb all that is within this paper and make informed positive responses knowing that fundamentally we have a strong, solid industry that will have every opportunity to attain over 70% origination market share in home lending in Australia.”

Other industry players

Both Mortgage Choice and Aussie Home Loans also put forward their support behind ASIC’s remuneration review.

John Flavell, chief executive officer of Mortgage Choice, said the report showed that brokers played a very important role in the home loan market.

“We have had a look at ASIC’s report and it is obvious that the regulator believes mortgage brokers provide a tremendous amount of value to consumers,” he said.

“In addition, they believe the logic behind the current commission model, which involves an upfront and trailing commission payment, is sound, but believe there is the potential to make some subtle changes around the fringes of the current remuneration structure.”

Mortgage Choice would continue to work with ASIC and provide ongoing consultation with the Treasury moving forwards.

Aussie Home Loans also supported the findings which stated that mortgage broking lifted competition in the marketplace.

“We believe the success of the mortgage broking industry is largely due to the improved customer outcomes the service provides, including increased competition, choice and education,” Tim Allerton, Aussie Home Loans spokesperson, said.

In response to ASIC’s recommendations around transparency and disclosure, Aussie was open about being a partly-owned subsidiary of the Commonwealth Bank of Australia and published this on its website and other materials, he added.

“Commissions paid by our panel of 21 lenders to Aussie are transparent and do not influence the lender chosen by our sophisticated ranking technology used by our 1,050 mortgage brokers in the field across Australia.”

Related stories:

ASIC voices concerns over broker commission model

“It’s not like commission is a dirty word”: FBAA

ASIC reveals six proposals in broker remuneration review

COMMENTS

  • by Anon 20/03/2017 9:43:12 AM

    Why "partially owned" when it should be "majority owned", ASIC would like to see transparency and if this is the response it shows we still have a lot of education within the industry first.

  • by Pathetic 20/03/2017 11:29:55 AM

    Can someone explain to me why the industry bodies are supporting this nonsense. I mean we pay these mobs to advocate for us and after a massive attack on our industry they behave like good little children and don't make a noise. Are you kidding me get up and fight I don't want to hear that you support this I want hear that you think the whole thing is a joke and call for Kelly Odwyers resignation! Roll over on this one and good luck fighting the next one. Pathetic

  • by Aaron 20/03/2017 11:38:18 AM

    I am genuinely excited by the prospect that ASIC proposes our commission structure should be tweaked/fine tuned. They have acknowledged the competition created by our presence in the market place, and I am sure they now understand the abhorrent premise behind clawback commissions. No doubt they find it confusing that we are the only brokers in the world that incur clawbacks...I'm sure they would know that in 2008 we would send a fax to the lender with a couple of pay slips, a drivers licence, proof of funds to complete and notes. Post GFC we had to accept a significant haircut to commissions, increased clawback periods and an exponential change to the scope of work undertaken as a broker.
    Data Entry, Valuations, Pricing, Loan documents, and Compliance that has become it's own filing cabinet in my office.....Clawbacks may, and I say "may" have had their place 10 years ago. Now we fully package the deal so I am not quite sure why a loan must run over two years for a bank to make a margin..... And today I read both the FBAA and the MFAA are essentially happy with the outcome of the report....
    When will the MFAA or FBAA actually have a win for us. After 16 years in the industry I believe their mission statements is to "minimise our loses"