Conclusions drawn by the Australian Securities & Investments Commission (ASIC) are “concerning” and “directly contradict” findings within the broking industry.
These statements come from the Finance Brokers Association of Australia
’s (FBAA’s) submission to Treasury around the ASIC Review of Mortgage Broker Remuneration. The FBAA’s submission also maintains that there is no correlation between broker commission and consumer borrowing patterns and that it only partially supports changes to the commission model.
“Any change to remuneration models which adversely impact brokers provide no gain to consumers. Any proposal for change must evidence a clear business case in favour of consumers,” FBAA executive director Peter White wrote. “The FBAA will not support changes to remuneration models that injure the profession and deliver no consumer benefit.”
Noting that ASIC’s data indicated a possible correlation between broker-arranged loans, loan size and LVR, White said that commission itself could not be singled out as the causative factor.
“Incentives are an inherent part of any sales or fee for service model but we should not rush to call an incentive a conflict of interest.”
LVR weighted commission payments would be difficult to implement and administer, he said. “It may be possible to base commission payments on the utilised/drawn down balance and not on large amounts left in redraw,” he added, although this would need to be subject to a reasonable timeframe or a ‘utilisation trigger’ so the broker’s income is not left to matters outside his or her control.
While White acknowledged the significant amount of data put into the review and recognised the validity of its conclusions, it worried that the reporting of these findings only presented one out of a number of possible interpretations of the data.
“We were surprised by some of the findings in that they are not supported by our own observations and those of our members, some even going so far as to directly contradict our understanding of the segment,” he wrote.
“We also note that some of the data is quite old, dating back to 2012 and possibly earlier. This was just two years into the establishment of the NCCP framework and a time when there was still significant uncertainty around how the specifics of the legislation would operate.”
Effects of more recent changes such as the removal of volume bonuses, changes in soft dollar benefits, and the shift away from higher commissions for special offers, would also take time to observe and would therefore not be included in ASIC’s findings, White said.
While White said he would not challenge ASIC’s conclusions, he said that the findings themselves raised a number of concerns:
- While the findings can be interpreted in numerous ways, ASIC’s methodology did not address these alternatives
- The idea of loan purpose was not explored in detail despite being an important factor when looking at loan features
- The role of the lender or credit provider was not included in the findings, which distorted perspectives about the broker’s role
ASIC’s report also did not mention that licensee credit providers were “100% conflicted,” White said.
“Consumers using licensee credit providers will only ever end up in that issuer’s products. We cannot see how this outcome can be promoted as superior to consumers being given product choice through a broker.”
While the FBAA is committed to working with regulators to maintain high standards and positive consumer outcomes, the association is “cautious to accept that the ASIC Report presents a compelling case for the need for further reform,” White said.
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