Broker channel at “severe risk”

by Rebecca Pike06 Feb 2019

The industry is still reeling from the news that broker commissions look likely to be scrapped next year, after the Royal Commission final report suggested broker pay changes.

Commissioner Kenneth Hayne made the recommendation to scrap trail payments and switch to a borrower-pays system.

Treasurer Josh Frydenberg said the changes to trail would be implemented by 1 July 2020, but that a review would take place in three years to assess the impact of any changes to upfront payments.

In response to the Royal Commission report, the industry associations have been vocal about their opinions on the matter.

The Mortgage and Finance Association of Australia (MFAA) has warned that the big banks will profit from these changes.

In a statement, CEO Mike Felton said the broker channel will be at “severe risk”, as changes damage competition and access to credit.

He added, “As reviews by ASIC, the ABA and the Productivity Commission have found, brokers drive competition by providing a shopfront for smaller lenders, particularly for rural and regional customers. We are critical to the health of Australia’s mortgage lending market.

“I fail to see how decimating the broker channel, leaving Australians with a handful of lenders to choose from, is good for competition, or good for customers.

“At this stage it is still unclear whether the Final Report is recommending a consumer fee-for-service or the so-called ‘Netherlands’ model.

“If the recommendation is a broker only consumer fee-for-service, that will mean brokers and smaller lenders will no longer be able to compete on a level playing field with the big banks with major branch networks.”

The fears over changes to broker remuneration have been echoed across smaller lenders.

The Customer Owned Banking Association’s (COBA) CEO Michael Lawrence has urged policy makers to ensure the focus on competition is not lost.

He said, “The broking channel is an important one for many smaller lenders. We are keen to proceed with caution to ensure that there is no adverse impact on consumers’ access to lenders and that competition in the home lending market isn’t eroded.

“It is critically important that the focus on competition is not lost. We have a banking market that is dominated by four major players, who throughout the Royal Commission have proved that their focus is not always in the customers’ best interest.”

CEO of SME lender Scottish Pacific, Peter Langham, said he had “real concerns over the drastic changes”.

“We work closely with commercial brokers to organise funding for thousands of SMEs,” he added. “While the Royal Commission recommendations focus on residential brokers, we are concerned about the impact this will have on the viability of the whole broker sector and consequently on small and medium business owners.

“Adding a broker fee for service is likely to be detrimental to anybody who can't get funding from the banks. Brokers play a major role in putting non-bank lending alternatives to their clients, providing real solutions for business owners when the banks can’t or won’t lend to them.

“Fee for service is likely to drive borrowers straight to those with the biggest advertising budget.”