Speaking in front of the parliamentary committee called to “scrutinise the financial advice sector” earlier this week, AFG CEO David Bailey outlined two significant topical industry concerns to those gathered.
While Bailey made it clear he welcomed the imminent best interests duty (BID), and explained AFG is “well advanced” in implementing the changes necessary to ensure compliance, he also took a stand for broker remuneration, stressing that the combination of upfront and trail is essential to meeting BID obligations.
“The role of the broker has never been better illustrated than during the COVID‐19 pandemic and the dislocation to the economy and the lives of Australian mortgage holders,” he said.
“Banks being forced to close branches and redirect call centre staff towards dealing with hardship cases has meant that brokers have been spending more and more time working through the options for clients affected by job losses or wage reductions.
“Our brokers have never been busier and are working with their own uncertainties as small business operators and employers in their own right, trying to navigate these uncertain times.
“This work is able to be provided due to the existing remuneration structure which is balanced between an upfront and ongoing trail payments from lenders,” he emphasised.
Bailey also highlighted that, over the past few months, there has been a significant shift in business back towards the country’s major lenders, with the big four now sitting at approximately 70% market share, up from 53% in February.
“The major banks have used their balance sheet strength to take back market share from the non‐major lenders,” Bailey explained.
“The offers being made to consumers by the majors meant it was in the consumers’ interests for the broker to recommend a move to the major lenders. Whether this shift is in the long-term interests of a competitive lending market is uncertain. When we come through the other side of the current crisis, the maintenance of competition and choice for products across a broad number of lenders is an important cornerstone of an effective lending market that Australian consumers and businesses should be able to depend upon.
“We look forward to continuing to work with the government to ensure the effective force mortgage brokers deliver to competition, choice and lower borrowing costs is maintained," he finished.