Staying ahead of the curve

by Melanie Mingas07 Nov 2019

Having steered the industry through the challenges of 2019, the MFAA is now focused on preparing for the next test. CEO Mike Felton reveals the plans to Australian Broker and explains why the future of broking is all about status

Over the last three years, the broking industry has faced near constant scrutiny, and after the turbulence of 2019, it would be easy to think that Mike Felton, CEO of the Mortgage and Finance Association of Australia, is looking forward to a relaxing year end.

However, with another regulatory review scheduled for 2022, threats remain, particularly those posed by external forces. For the MFAA, this means the work is far from done.

In preparation, the association is driving a campaign to transition the status of broking from industry to profession. It’s a drive that will see customers become “the centre of the brokers’ universe”, and brokers themselves recognised shoulder-to-shoulder with established finance professionals.

“We aren’t talking about professional behaviour, but establishing the pillars of a profession,” Felton says.

“I have confidence in our members’ ability and willingness to act in a professional manner when working with customers, but the fact of the matter is, we are not viewed as a profession. If we were, we would not be facing the issues we are.”

Fully cognisant of the scale of the task, Felton says changing that view will demand “a long, hard look” at how broking operates and evolves, including its entry requirements and accountability. What materialises must go beyond what the law expects.

“By ‘profession’, I mean very plainly that we use elevated levels of knowledge and skill, of accountability, of ethics and self-regulation, to absolutely, steadfastly focus on protecting the customer,” he says. 

“The customer is now formally acknowledged as being the centre of our universe, and customers’ protection and assurance is everything. What will emerge from that will be a far stronger, more resilient business that has long-term sustainability.”

In short, the MFAA will not firefight the 2022 review, but rather look to fully eliminate the threat of external forces leveraging it – or any subsequent review – in order to dismantle mortgage broking.

“It’s now time to rise to the challenge to ensure further changes to our industry are not necessary” Mike Felton, CEO, MFAA

“Our actions over the coming months and years will define the future for mortgage brokers,” Felton says.

“Will we slip into two and a half years of defence and conflict with regulators, or will we take proactive steps to stay ahead of the curve, continue our journey towards true self-regulation and be seen by others as a trusted profession? It must be the latter.”

Defining factors

There are multiple ways to define a profession, but the MFAA is aligning its work with that of the Professional Standards Council (PSC), which uses the ‘Five Es’ model: education, ethics, experience, entity and examination.

On education, the MFAA is looking to raise the minimum standard to a diploma while reviewing the current Certificate IV and diploma to ensure they remain relevant in an evolving operational environment.

Without mincing words, Felton says both are “in dire need” of the review, and the MFAA is providing input into PwC’s evaluation of the financial services training packages.

The association will also assess the impact of experience, specifically what counts and how to ensure mentoring frameworks are more robust. Updated requirements are already live on the MFAA website. Improved documentation, record keeping and auditing are also on the list. 

However, the definitive measure of a profession is its ethical framework. Just as the true professions of lawyer, doctor and teacher are each held to codes of conduct, the MFAA aims to implement ethics training before Christmas, “to meet and exceed the expectations of conduct and duty under the law”. Further, an ethics module is planned to become a core component of all foundational education, with a soft deadline of June 2020.

In terms of ‘entity’, the MFAA will drive the agenda, advocating for the best possible customer outcomes.

“It’s the entity that manages the framework, which supports customer outcomes. Bringing teeth to the reforms ensures their accountability and protects the longterm sustainability of our industry,” Felton explains.

Broking isn’t the first occupation to undertake this process, and as such, the benefits are well established. PSC says professional status brings recognition and acceptance for the practitioner, along with improved reputational benefits and an increase in available earnings. In turn, these cascade through the economy, community and regulatory functions of the industry in question.

Admitting that the task ahead is “mammoth”, Felton maintains the results will be worth it. 

“The big one is the increased trust and confidence, particularly among the 40% of people who don’t currently use a mortgage broker,” he says.

The future of broking

The initiative is kicking off at a time the MFAA recognises as being a potential “golden period” for broking.

There have been economic headwinds in recent years; however, lower taxes, low interest rates and a growing demand for property, spurred by the FHB scheme, are sustaining ideal market conditions.

Frank when questioned on the reforms underway and the challenges brokers face, Felton says conflicted remuneration must be managed and formal structures implemented to “assist in managing conflicts going forward”. 

Yet regardless of environmental factors, he warns that the greatest threat is continuing a business-asusual approach.

“It’s now time to rise to the challenge to ensure further changes to our industry are not necessary,” he says.

Apathy isn’t the sole threat, however – one significant hurdle persists at the centre of the plans.

“There is a real risk that some stakeholders and regulators continue to view us as a commodity service,” Felton says.

“We must rise above this view and move to become a respected profession which is not constantly set upon by consumer advocates and elected officials demanding regulation.” 

In measuring the success of its plan, the MFAA will assess market share growth and consumer trust and confidence, along with “the frequency and intensity of scrutiny moving forwards” – so the 2022 review will be the “first litmus test”.

As the journey begins, the latest complaints data certainly puts the best foot forward. AFCA recorded 60,687 complaints about financial products and services between 1 November 2018 and the end of August 2019, of which a mere 202 related to mortgage brokers.

“Yes, we need to manage conflicted remuneration moving forward, but I believe that we have an incredibly strong industry, and the data supports that,” Felton says.

It’s clear the MFAA’s plans are not just about staying ahead of the curve; that was achieved with the adoption of ASIC’s remuneration reforms and the establishment of the Combined Industry Forum. Today, it’s about becoming the architects of its apex, and the cause is pertinent.

Despite the progress made in recent years, the 2019 Mortgage Brokers Bill and its associated draft regulations are just the latest example of how external forces can influence and fundamentally change broking overnight.

“I believe we must continue our journey from an industry to a profession to put us out of the reach of the constant threat of new regulation. By improving our transparency, governance and education, we can remain ahead of the curve,” Felton says.

Speaking at the Loan Market Conference earlier this year, Treasurer Josh Frydenberg said the industry must “rise to its challenges”, and Felton echoes his position. However, those challenges are coming thick, fast and from every direction.

Felton is vocal in his pride for what residential brokers have achieved in the last year, but ultimately, the MFAA’s stance is one of continued proactivity and decisive action to prevent history repeating. As Felton says, “It is indeed now up to us. The ball is back in our court.”