Does BID negate the need for clawbacks?

Non-bank lender, broker aggregator say clawbacks unnecessary

Does BID negate the need for clawbacks?


By Jayden Fennell

Clawbacks are at odds with the best interests duty and are no longer relevant for the broker industry, says aggregator group Finsure.

Finsure CEO Simon Bednar said clawbacks were now unjustified when coupled with exemplary broker conduct and the BID obligations requiring brokers to act in the best interests of their clients.

La Trobe Financial chief lending officer and senior vice-president Cory Bannister (pictured) is supportive of Bednar’s comments. The non-bank lender does not have a clawback policy.

Bannister said if a broker had completed the work to assist both their client and the lender, appropriately review, assess, and recommend a loan that was subsequently settled, they should get paid.

“The protection for lenders against ‘unnecessary churn’ or ‘gaming’ to generate additional commission is the BID legislation,” Bannister said.

He said apart from the obvious direct monetary benefit of a no-clawback policy for brokers, one of the most important benefits was the certainty and predictability of both income and cash flow. 

“Under a no-clawback policy, brokers needn’t worry about possible short-term cash flow issues which can arise from a loan being repaid early and commission being clawed back - the cause of much unnecessary stress and pressure for brokers. Instead, they are able to continue focusing on building their business.”

Bednar said clawbacks had been around for just over a decade when the federal government banned lender exit fees which charged the borrower for exiting the loan within two years.

“The lenders simply renamed the fee and now charge the broker instead,” he said.

Simon Bednar

Bednar said there needed to be a discussion about the relevance of clawbacks given both the MFAA and FBAA’s own data had confirmed an average loan length of more than four years, which was a statistic backed by Finsure’s own portfolio data.

“Why is clawback even relevant when the average life of a loan is more than four years,” he said.

“Given the development of mature data in the industry where broker conduct can be measured using data insights, why hasn’t the industry pivoted to reward good broker behaviour? Brokers with portfolios that perform and don’t incur excess churn should be rewarded and this can be demonstrated through data. Data doesn’t lie.”

Bednar said he looked forward to the upcoming industry aggregator attestation program which would hopefully be an opportunity for aggregators to demonstrate and showcase their compliance framework, data analytics, and enhance the argument that good broker behaviour should be recognised.

“Since the introduction of BID, brokers have been obligated to ensure their clients best interests are considered when recommending and placing a loan.” 

“I want to see an industry which supports brokers through the use of aggregator and lender data in a mature way and encourage industry discussion to achieve a way forward,” he said.

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