A joint submission by consumer advocacy groups to the ASIC broker remuneration review has been panned by the Mortgage & Finance Association of Australia (MFAA) as “ill-informed” and “detrimental”.
The submission, written jointly by CHOICE, Consumer Action, Financial Counselling Australia and Financial Rights Legal Centre, was delivered to the Treasury on Tuesday (11 July).
The groups recommended a complete overhaul of the current broker commission structure saying that “at minimum, commission payments must be restructured so that payments are not linked to the amount a customer borrows”.
They also suggested removing upfront commissions and replacing them with fixed fees for advice, either in the form of a lump sum payment or as a rate based on the hours of work required, while advising that trail commissions be scrapped entirely.
MFAA CEO Mike Felton
said that these proposals would significantly harm the interests of consumers and did not reflect the concerns raised by the Australian Securities and Investments Commission (ASIC) in its initial report.
“ASIC understands that brokers drive competition and provide a critical service to consumers that combines choice, expertise and convenience, to help them make informed choices and get the most appropriate deal. This was supported by comments made by ASIC chairman Greg Medcraft after the report’s release, in which he said that brokers deliver great consumer outcomes,” Felton said.
While a fee-for-service model may suit lenders, it will drive a large proportion of brokers out of the industry, he said. The removal of so many brokers would severely reduce competition in the industry – a situation which Felton said the MFAA was trying to avoid.
“Consumers have voted with their feet over the past 20 years, and mortgage brokers now write more than 53% of all mortgages in Australia. The industry grew by 4% in 2016, and 92% of consumers reported they were ‘satisfied’ or ‘very satisfied’ with their broker’s performance, according to a 2015 Ernst & Young study,” he said.
“I do not see how removing brokers from the industry, and consolidating power back in the hands of banks, serves the needs of consumers.”
The MFAA was concerned about providing access to finance by Australians who live in rural or regional areas, Felton said.
“Brokers provide regional Australians the same access to finance as people who live in inner Sydney or Melbourne and it is critical that we should avoid doing anything to negatively impact that.”
Felton also highlighted that the ASIC report never recommended removing the link between loan size and commission, nor did it propose bringing in a flat fee-for-service model.
“A single, lender-funded, fee-for-service would lead to a standardisation of all fees, which we believe ASIC itself does not support and we believe would also be considered anti-competitive by the ACCC,” he said.
“All our commissions are fully disclosed, and the MFAA works very hard to ensure that brokers are transparent about how and why they are paid by lenders. We will continue to work with ASIC and Treasury and the Combined Industry Forum made up of a broad range of key industry stakeholders to seek the best possible outcomes for consumers.”
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