A group of mortgage brokers have released a report calling for aggregators to have new responsibilities, as part of six recommended guidelines.
In a new report released today, the Mortgage Broker Forum (MBF) has recommended aggregators be given greater responsibility to work with the Australian Securities and Investments Commission (ASIC) to improve compliance in the industry.
In its report, the MBF recommended retaining upfront and trail commissions, saying the structure not only helped keep interest rates low, but provided a strong incentive for mortgage brokers to put customers in the right loan the first time and promoted competition.
The MBF is a group of 11 independent mortgage broker firms working with the support of hundreds of individual brokers to improve outcomes for customers.
Central to the report’s recommendations is the creation of Registered Credit and Compliance Holders (RCCH), which would continue to aggregate mortgage brokers and lenders but also be responsible for the behaviour and compliance of its aligned mortgage broker network. Each RCCH would be supervised by ASIC.
Mark Bouris, founder of Yellow Brick Road and member of the Mortgage Broker Forum, said, “A RCCH would help ASIC do its job of supervising the mortgage broker industry, helping achieve better outcomes for customers.
“Aggregators would play an expanded role in the sector by holding the umbrella license and ensuring its licensees comply. Mortgage brokers would become more accountable for their decisions.
“The change would help ensure a healthy mortgage broker industry, which is critical to keeping the home lending market competitive. More than half of all mortgages, worth around $200 billion a year, are organised through mortgage brokers."
The MBF believes national best practice guidelines would provide greater confidence in the industry. The guidelines would ask mortgage brokers to demonstrate that they always put the customer’s interests first and regularly review his/her financial circumstances after a loan had been settled.
Bouris added, “It is critical that mortgage brokers remain a sustainable force for competition in the lending market. Otherwise the big lenders will dominate. At the same time, the industry needs to keep improving its own performance.”
Mortgage brokers establish around 55% of all home loans in the Australian market, are responsible for around 27,000 jobs and have the overwhelming support of home buyers. They enable many borrowers to access and compare loans and provide an efficient distribution method for home lenders.
The MBF report is in response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, as well as several industry and government inquiries into the sector. It provides an independent voice for mortgage brokers.
Today’s report includes six recommendations to sharply improve governance in the sector.
“Mortgage brokers understand the need to evolve and work with lenders and aggregators to better improve outcomes for customers. We believe our recommendations would greatly enhance confidence in mortgage brokers and the services they offer,” Mr Bouris said.
Recommendation 1: Upfront and trail commission
Upfront and trail commission should be calculated on a fair, equitable and reasonable basis for mortgage brokers and lenders. Upfront commission should be paid on a utilisation basis (ie: facility limit drawn down by customer net of offset) and trail commission paid on the amortised drawn down amount, net of offset.
Recommendation 2: Best practice guidelines
All mortgage brokers must work towards providing the best possible outcome for customers. The Mortgage Broker Forum is committed to promoting competition in the mortgage market and working with the Combined Industry Forum to establish an industry Code of Conduct
As part of that, ‘best practice’ guidelines for mortgage brokers earning trailing commission should be introduced.
Under the guidelines the mortgage broker would need to demonstrate that:
• they put customers interests before their own interests;
• they have been in regular contact with the customer;
• they have offered the customer at least annual reviews of their personal financial circumstances; and
• they are available and qualified to meet with the customer and review their personal financial circumstances and make changes where necessary.
Recommendation 3: Volume and campaign-based commissions
The mortgage industry should move away from volume-based bonus commissions and campaignbased commissions.
Recommendation 4: Soft dollar benefits
The mortgage industry should move away from soft dollar benefits and guidelines need to be developed for tiered servicing models, conferences and professional development events.
Recommendation 5: Transparency of ownership
Clearer disclosure of ownership structures is necessary. Broadly speaking, this is where the ownership of the entity employing the broker is more than 20 per cent, and where less than 20 per cent, a board seat is held or a white label product is offered by a substantial shareholder. Disclosure should occur at all distribution points.
Recommendation 6: Creation of Registered Credit and Compliance Holders
Aggregators are already responsible for ensuring compliance for those mortgage brokers who are credit representatives under the aggregator’s Australian Credit Licence (ACL). Codifying and expanding their role could give an aggregator more formal compliance responsibilities. They could:
- be responsible for compliance of all mortgage brokers who use the aggregator to assist with their mortgage broking operations, regardless of whether the mortgage broker is a credit representative under the aggregator’s ACL;
- provide mortgage brokers with access to lenders as per current arrangements;
- provide professional development, infrastructure and technology support to mortgage brokers, as per current arrangements; and
- be expected to audit each mortgage broker once a year, ensuring the mortgage broker has adequate notes and records of client discussions.
ASIC would oversee Registered Credit and Compliance Holders (RCCH). Each RCCH would be responsible for the behaviour and compliance of its aligned mortgage brokers