MFAA defends brokers against Fairfax, again

by Julia Corderoy27 May 2016

The Mortgage and Finance Association of Australia (MFAA) has called out the Australian Financial Review (AFR) after it published an article claiming the standards in mortgage broking continue to lag behind other sectors, namely financial planning.

In the article, titled ‘Mortgage broker salad days are numbered’, the AFR claims: “Brokers live in fear that commissions will be outlawed and when you look at the numbers you can understand why.”

It calculates that in the September quarter last year, brokers would have received upfront commission of about $300 million and locked in another $50 million in annual trailing commission. The AFR then goes on to claim that it is unclear whether these commissions influence where brokers direct business.

“Although commissions are disclosed to home loan borrowers at the time of sale it is not clear whether or not the final recommendations given to consumers are in their interests,” the AFR wrote.

The solution, according to the Fairfax publication, would be to bring the “lagging” mortgage industry in line with the financial advice industry.

“Mortgage brokers have worked hard in recent years to lift professional standards, particularly through the Mortgage and Finance Association of Australia. But its standards continue to lag those being imposed on other sectors including financial planners.”

However, the CEO of the MFAA, Siobhan Hayden, has retaliated, stating the obvious — mortgage broking and financial planning are inherently different. 

“There are clear differences between the remuneration structures in mortgage broking and those in the financial planning and life insurance industries. Crucially, brokers are paid commissions by lenders; they are not paid by consumers. Commissions are also variable and reflect the cost of a mortgage.”

Further, she argues, banning commissions would have severe ramifications on competition.

“Removing commissions, in favour of say fee for service, would reduce the ability of smaller lenders to compete in the mortgage market as they currently do via brokers. This ability increases competition in the broader mortgage market, competition which ultimately benefits consumers.”

Hayden also noted that payments to brokers cease if their customer’s loans are ever in arrears or default.

Hayden’s remarks are aside from the fact that as of the March 2016 quarter, more than half (53.7%) of all new mortgage flows in Australia were introduced by mortgage brokers, representing 3.5% year on year growth and clearly demonstrating that consumers themselves trust brokers.

In addition, according to a survey conducted by Australian Broker’s sister publication, MPA, 70% of consumers said being paid commission didn’t affect the service they received from their broker.

“The MFAA works closely with ASIC and supports ASIC’s review of broker remuneration and has fully cooperated with submissions and data to support the consumer benefits of the broker model since the review’s commencement in February,” Hayden added.
 

COMMENTS

  • by A Premium Broker 27/05/2016 9:13:23 AM

    I believe a lot of clients would choose a free branch service over a broker if Brokers had to charge a fee for service.

    The fee Brokers are paid replaces the fee lenders would need to pay their own staff ie lenders need less sales staff.

    The AFR article claims that brokers could be influenced by the amount of commission that they receive, however the alternative is that the client will visit a branch where the bank manager is contractually obliged to offer the client no choice at all. They are 100% influenced by the commission/pay that they receive from their employer.

    As an employee of the bank their first obligation is to their employer and the shareholders of the bank.

    The whole argument is ludicrous. Brokers offer a better service with more options.

    Without loyal clients and word of mouth referrals, brokers would be out of business, and that is why all the brokers I know put their clients best interests first.

    Good on the MFAA for sticking up for us.