Broker associations disappointed with Sedgwick

by Miklos Bolza21 Apr 2017
Australia’s two national mortgage broking associations have expressed their concerns around some of the Sedgwick Review’s recommendations to alter broker remuneration.

The final report of the review, released yesterday (19 April), was financed by the Australian Bankers' Association (ABA) and conducted by Stephen Sedgwick AO, it made 21 recommendations to the banks around remuneration – three of which involved the third party channel.

While the Mortgage & Finance Association of Australia (MFAA) was pleased that the Sedgwick review found no evidence of systemic harm, the observations and recommendations made around the broker channel did not present realistic solutions, CEO Mike Felton said.

“This is a review commissioned by the banks that aims to deal with the banks’ reputational problems, but as far as the broker channel is concerned does not create better consumer outcomes.”

Peter White, director of the Finance Brokers Association of Australia (FBAA), said the extraordinary thing was that despite the review admitting there was nothing systemically wrong, it still made three recommendations to change broker remuneration structures.

“Why are they trying to pull things apart? You only pull things apart and restructure them if there’s something systemically wrong,” he told Australian Broker.

In the end, the review was one person’s view of the world paid for by the banks without actually being a regulatory paper, he said.

A lack of consultation

Felton expressed frustration that the review claimed to be focused on a customer-centric viewpoint while ignoring that this was a key aspect of how brokers and aggregators functioned.

“The review’s recommendations on the third-party channel appear to be based mostly on anecdotal evidence from its members. It is unfortunate that the review process did not include meaningful consultation with the broader industry in developing this report,” Felton said.

White echoed similar sentiments, saying that the FBAA had not been approached by the Sedgwick review either.

“You’ve got to wonder behind the scenes, what are the real drivers? And I question what those drivers are. Part of our regulatory experience is all about truth through transparency. I think we’ll never see the true transparency that sits behind this report.”

Unreasonable requests?

The MFAA was also concerned that recommendations in the ABA review also went beyond those in the Australian Securities & Investment Commission’s (ASIC’s) report into mortgage broker remuneration, Felton said.

He highlighted the proposal to adjust or remove current broker incentives and potentially introduce a lender fee-for-service approach.

“The ASIC Report does not recommend removing the link between loan size and commission, nor a fee-for-service model nor removal of trail commission – with good reason. A single, lender-funded, fee for service is likely to lead to a degree of standardisation of all fees, which ASIC is not calling for. It may also be considered anti-competitive by the ACCC, and therefore would not be able to be implemented.”

As for the suggestion to align broker payment structures with those of bank staff, this was not going to happen unless the banks started paying the brokers a very strong, competitive salary and remove clawbacks, White said.

These review’s recommendations were “very misguided” since broker commission structures on a global scale create excellent outcomes if structured in the right manner, such as in Australia, he continued.

Furthermore, claims that linked the difficulty in writing a loan to the characteristics of the borrower instead of the loan size were simply incorrect, he said.

“Anyone who’s actually written credit in their lives knows that this is actually not the case. This shows that this person hasn’t done any lending or if they have they really don’t understand what they’ve been doing.”

Related stories:

Sedgwick shoots down commissions linked to loan size

Final Sedgwick report released

Aggregator slams ABA Review's "ludicrous" broker findings

COMMENTS

  • by John Whitten 21/04/2017 9:03:40 AM

    I don't see that anyone should be surprised with the report. It was commissioned by the banks, so it was always going to give the banks the opportunity to screw brokers.

    The banks state that we are their partners, however I feel we are like the toothache that they have to tolerate, and they would be happy to get rid of us, or as a minimum reduce our profitability.

    I am also concerned about aggregators being owned by banks. I have been told that our aggregator will be looking after the brokers interests in this matter and not putting the banks interest first. I am not so certain that this will happen.

    We need to put all bank owned aggregators on notice, that if this occurs, we will be looking for non bank owned aggregators. If we moved it would result in lower profits for bank owned aggregators.

    This is not a game, it is our livelihood.

  • by Barney 21/04/2017 9:37:14 AM

    If you write larger loans you would know that they are (mostly) much more work. Some of what is implied is the belief that brokers "sell" people larger loans than they need which is just ridiculous. The loan is a by-product of the decision to purchase. You don't upsell the debt! And if you do the banks should clawback undrawn funds after a set period. That's fine. Though payments should still be linked to loan size.
    Otherwise who would want to write complicated self employed (larger) deals? As Peter White said - whoever wrote this clearly does not understand lending. Its a clever framework to allow the banks to collude on pricing (or commission payments) and they can they say "It wasn't us.... " yer right...

  • by Sam 21/04/2017 9:55:08 AM

    I couldn't agree more, John. As a member of 15 years with a now bank owned aggregator, I am extremely concerned about my future.
    Unfortunately, if I change aggregators, I lose my trail so changing is not a real option. I haven't heard a squeek from my aggregator and very much doubt if I will. More chance of Wayne Bennet demanding that the ref send one of his players to the sin bin!!