Brokers have been urged to put their clients' interests before commissions when selling white label products, amid fears ASIC may step in. We speak to Kim Cannon of FirstMac and Jon Denovan of Gadens Lawyers for their thoughts on sales tactics and pending changes to the MFAA's conflict module.
Video transcript below:
Donna Sawyer, Australian Broker TV
Donna Sawyer: Brokers have been warned against selling white label products based on incentives and there are suggestions that ASIC may step in if aggressive sales tactics among aggregators continue. Jon Denovan of Gadens Lawyers says brokers need to ensure they are acting in their client’s best interests.
Jon Denovan, Gadens Lawyers
Jon Denovan: The key thing is the competition is good and you need competition at two levels. You need it at the borrower level or the retail level and you also need it at the distribution level. No other industry in the world doesn’t have competition at two levels. And that’s all you see in there. You are seeing a competition in the price that’s delivered to the borrower and you are also seeing competition in the rewards that are given by the aggregators, by the funders through the white label programs. Competition is good for consumers, it’s good for the economy and this is just a type of competition. Now competition that damages consumers by them having a trusted advisor sell them something that isn’t right for them is bad competition.
Kim Cannon, FirstMac
Kim Cannon: I have noticed the talk about the white labelling recently and it is interesting. Does a broker now sell the product now because of his ability to generate better commission income than others. I know for years when I talked to aggregators about selling my products, it was always too hard to sell a FirstMac product versus a bank product, because it’s FirstMac but soon as the aggregators put their white label product in and it didn’t seem to be a problem anymore and so it’s all about what the aggregators are pushing their people to do and what they want to sell. You know their incomes have been slashed dramatically over the years since the global crisis and so it’s all about income now.
Donna Sawyer: Kim Cannon of FirstMac says the future of commissions is uncertain as regulators take more steps to protect the consumer.
Kim Cannon: Brokers in Australia are now licensed by ASIC and are there similarities to what’s happened in the financial planning industry about to overtake the broking industry sometime in the future is the need to quest for commission going to be outlawed because the people weren’t selling the right products. So that will be an interesting thing that goes forward. It will be interesting to go forward I suppose. I often sit down and wonder why, maybe we should grab the first product with the lowest rate in town with a $100 commission and see how many brokers sell that. Where is their conscience and what happens licensingwise when that happens in the future.
Donna Sawyer: Jon Denovan says he’s been working with the MFAA to update its conflict module to provide thorough legal advice to brokers regarding the sale of white label products.
Jon Denovan: The conflict module at the moment is a pretty basic document which is done very early in the days when the legislation was starting and it didn’t attempt to deal with white labelling, using that term to mean a situation where the broker has some influence on the price that the borrower pays. The price for both residential mortgages, investment mortgages, but also leases. And so that needs to be addressed. Industry needs some sort of guidance for that and I have been working on it for some time, I have got some input from a number of key industry people and I hope that what we come up with is workable both for brokers and for consumers and for the regulators.
Donna Sawyer: This is Donna Sawyer reporting for Australian Broker TV.