The head of one of Australia’s largest aggregators has spoken out about the importance of brokers, tackling remuneration, customer service and roles and responsibilities, as the Royal Commission final report looms.
By David Bailey, CEO of Australian Finance Group Ltd.
One of the elements in last year’s Interim Report of the Financial Services Royal Commission that didn’t gain much attention at the time centred on the role of the mortgage broking industry in Australia. Commissioner Hayne noted a lack of knowledge about the roles and responsibilities of mortgage brokers.
This dearth of information came despite mortgage brokers now arranging more loans than lenders directly. Brokers’ share of new home loans stands at more than 55% and is growing by the day.
The growth in mortgage broker numbers, in conjunction with deregulation, has led to more suppliers entering the market, especially smaller domestic and foreign lenders. Underlining the greater choice for consumers, AFG brokers are delivering about 40% of business to the non-major lenders.
As mortgage brokers, we are a significant industry in our own right, contributing almost $3billion in gross value added to the Australian economy annually and supporting the employment of more than 27,000 workers.
Taking up the Commissioner’s challenge on behalf of the industry, AFG launched a national advertising campaign to highlight some of the benefits mortgage brokers can deliver for customers.
The benefits flow on to the broader economy. The information campaign picked up Commissioner Hayne’s point as the sector believes there needs to be more education about what they do. You can see the campaign here: https://www.keepcompetitionalive.com.au.
The campaign created a groundswell of activity among Australia’s mortgage broking community. One of the areas where brokers became most energised is the issue of broker remuneration.
We all know the remuneration model is being looked at in the wake of the Royal Commission. This isn’t new. It is something we, as an industry, have been reviewing for some time through the Combined Industry Forum.
In feedback to our campaign, there is strong consensus among brokers that the biggest myth surrounding the mortgage broking sector is the idea that brokers don’t do anything after the home loan is established to earn their commission.
The common theme of feedback from brokers is that they are “proud” of the service they offer customers.
Every broker works with clients in a different way. After loans settle, many brokers check in with customers and lenders from time to time to ensure their client is still getting a good deal.
This often involves a dual approach. Firstly, a market appraisal element to see what is on offer and, separately, also checking in with clients to see if circumstances have changed.
Some brokers conduct this process using hi-tech software and programs with complex algorithms while others use set dates in the calendar to check in. For example, a notional 12-month anniversary of the loan could provide a prompt to touch base with the client, or similarly a birthday message provides a trigger to engage.
One broker in Queensland told how in the final quarter of 2018 she had saved her clients $40,000 by renegotiating rates on existing loans.
Another Brisbane-based broker posed the question to a Federal MP: “just a point of difference, does your bank manager service you outside normal business hours or on a weekend? It is the service, flexibility and diversification of product suites that brokers bring to our clients that results in high productivity and competition.”
This issue isn’t easy. The Federal Department of Treasury acknowledges that we have to be very careful to balance responsibility and interests if any changes are made to the existing system.
At AFG, we have always that said the introduction of fees for service would entrench the oligopoly powers of the major banks because it would impose a clear disincentive for consumers to use the services of a mortgage broker. Consumers would also lose out through the loss of pricing benefits.
Additionally, the big four banks, which hold about 80% of Australia’s home loan market, have always been opaque about pricing. If service fees were introduced, there would be no guarantee the big banks would pass on savings to customers.
Don’t just take my word for it. When the Productivity Commission looked at this, it found the fees-for-service paid by consumers would ultimately hurt competition.
The Productivity Commission concluded “a lack of willingness to pay is likely to result in a smaller mortgage broking industry, and the greater damage would be to the lenders without branch networks. Given that many mid-size and smaller lenders rely on brokers to compete, competition in the home loan market would likely be weaker as a result.”
That’s why regulators and policymakers are treading carefully in examining this issue in the lead-up to the final report from Commissioner Hayne.