“Let’s not blame the brokers”: Medcraft

by Miklos Bolza20 Mar 2017
The chairman of the Australian Securities and Investments Commission (ASIC), Greg Medcraft, has defended the broker channel after the release of the regulator’s controversial Review of Mortgage Broker Remuneration.

“The channel shouldn’t necessarily be blamed. What we’ve got to remember here at the end of the day is the lenders themselves are still responsible for the lending,” he told ABC’s The Business on Thursday (16 March).

Responding to a question about ASIC’s findings that broker originated loans tended to be higher value, interest-only or with higher LVRs, he said the focus should still be on the lender rather than the broker.

“Let’s not blame the brokers. They [the banks] are still responsible. They still have responsible lending obligations. Let’s look at not the channel but back to where the lending occurs. That’s most important.”

He praised the broker community for delivering great consumer outcomes as well as competition. However, he said that the current commission structure for brokers needed some tweaking as it was clear that remuneration structures were a driving force behind behaviour.

“The standard commission structure is OK. It needs fine tuning perhaps to think about the issue of looking at how you pay. Perhaps, rather than paying on amount, you’re paying on things like LVR or risk.”

Volume bonuses should also be scrapped, he said, as they were not compatible with good consumer outcomes or the creation of a level playing field in terms of competition.

Martin North, principal of Digital Finance Analytics (DFA), has also made a statement around broker’s valuable role within the community.

In a blog post responding to the ASIC review, North wrote that “consumers get more responsive assistance and access to industry knowledge via a broker, and our surveys indicate much higher satisfaction ratings than those going direct to a bank”.

“Because brokers look across lenders, they should have access to a wider range of options, and (perhaps) better pricing. Different types of customers use brokers differently.  But there is a valid and important role for brokers.”

He said that while ASIC has not suggested the removal of the commission model, they have proposed significant changes to it with ongoing consultation around the nature of these changes expected.

Related stories:

ASIC voices concerns over broker commission model

ASIC briefs O’Dwyer on remuneration review

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

COMMENTS

  • by Broker 20/03/2017 11:19:47 AM

    "Perhaps, rather than paying on amount, you’re paying on things like LVR or risk.” ( meaning this would save the banks money - as full commissions probably maintained for 50% LVR deals , and then gradually clipped all the way up to 95% deals)

    Now I'm getting somewhat confused , such positive commentary from the head of ASIC , but I cant see how payments linked to LVR and risk would work or be a fair outcome.

    Are we going to end up with a commission schedule that resembles an LMI matrix?

  • by Concerned Broker 21/03/2017 10:18:43 AM

    I have grave concerns about not paying based on loan amount. Not suggesting for one minute that a broker should push for higher loan amounts to get a higher commission, BUT if commission is based on LVR for example, would the commission rates be increased annually to reflect CPI at least? Imagine if commission rates stay the same, Broker's profit would slowly decrease at the expense of Lender's profits increasing. At the moment the increased loan amounts based on property value increases over time ensures our income keeps up with CPI. Commission rates haven't changed for years and have actually decreased over time. Just something to consider!

  • by PJ Patterson - IFBF Chairman 22/03/2017 11:14:52 AM

    I'm very pleased that ASIC has explicitly noted that it's the 'Lenders' who ultimately make the decision on lending and NOT Brokers. I also find it curious that no one is really asking WHY the broker channel originates higher value loans! I might speculate that the broker channel (as a pure sales channel) is hungrier to sniff out the higher value loans. Maybe due to our strong referral networks we get to these high value loans before they walk into a bank? But I suspect there is a reason. One thing that is disappointing is that a government body is once again interfering in the free market. Lenders compete for broker business by offering market rate remuneration and for all intents and purposes lenders offer roughly the same comms give or take 10 bps. But it is rarely about rate and more often about policy, turn around and interest rate than the commission they pay. As a libertarian I say to ASIC don't meddle with the free market. If you are concerned about high LVR, Interest Only loans and the lenders that are making these loans, then focus on whether the lenders conduct is 'appropriate'. I certainly think there is merit in further capital requirements and other measures for those lenders to insure our banking system is sound.