Commissions are a form of conflicted remuneration, ASIC has said ahead of its forthcoming remuneration review, but the regulator insists it has no firm stance on commissions going into the review.
Since the government tasked ASIC with reviewing “misaligned remuneration incentives” in mortgage broking in its response to the Financial System Inquiry (FSI), ASIC senior executive leader - deposit takers, credit & insurers, Michael Saadat, told Australian Broker that this is the first comprehensive review into remuneration in the mortgage broking sector, so the regulator will go into the review with no preconceived biases or ideas.
“ASIC has not looked at commissions specifically so we do not have any data to indicate whether commissions are causing brokers to act in a way which is not beneficial for consumers.
“We don’t have that data so this review will be an important part of the process to get the data on what role commissions are in fact playing. Commissions are a form of remuneration that has, in other contexts, seen some concerns arise – as you pointed out in the life insurance context. However, I don’t think [ASIC] would say that commissions on their own are the only factor that can cause poor outcomes for consumers – there are a range of things, including things like poor culture.”
The fact remains, however, that the concept of commissions is undeniably a form of conflicted remuneration, according to Saadat.
“Although we haven't reviewed mortgage broker commissions in this way previously, commissions are a form of conflicted remuneration so the question is whether, as a form of conflicted remuneration, are they a cause for concern? That will be one of the things that we examine as part of our review.
“If a broker is being paid to behave in certain way by a lender then we are interested in exploring how that works in practice and whether it does actually affect the broker’s recommendation in a meaningful way.”
Saadat also confirmed that the review will cover more than just commission structures.
“The concerns which were raised in the Financial System Inquiry weren’t only about commissions, they were also about ownership structures in the industry and whether smaller lenders are at a disadvantage in accessing consumers through broker networks,” he told Australian Broker.
“So we are interested in exploring a range of issues to see what the data tells us.”