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Aggregator head laments bank response to rem reform

by Charbel Kadib5 minute read

The head of a major aggregator has flagged issues associated with the conflicting methods used by lenders to calculate upfront commissions in response to “net of offset” reforms.

In an address at the LIXI Forum 2019, Connective director Mark Haron has noted the impact of contrasting remuneration policies adopted by the lenders off the back of the Combined Industry Forum’s move to limit the upfront commission paid to brokers to the amount drawn down by borrowers (net of offset).

Mr Haron said that some lenders had opted to withhold the payment of commission for additional funds arranged by a broker, which are utilised by a borrower after a pre-determined period post-settlement.

“Unfortunately, the way some banks across the market have adopted the payment process is that sometimes brokers don’t always see all the remuneration they probably deserved,” he said.


“We did say in some of our guidance on it that the banks should look to make additional payments as the funds are utilised down the track, but weve only seen that introduced across half the banks and its been introduced in very different ways.”

Mr Haron said that the disparity in the application of the CIF reforms had increased risks of “lender choice conflicts”, which could hinder compliance with the newly proposed best interests duty.

“It has caused a ‘lender choice conflict’ [where] brokers are thinking, ‘Well, my client is not going to use most of the funds until about six months, this lender is not going to pay me anything further after those initial payments, why would I take the loan there?’” he added.

“That will create a conflict with the best interests duty.”

The Connective director added that the industry is working to address the issue, but he said prospective reforms could not come from the CIF, with members “bound by competition law” and unable to collaborate to determine a standardised model for commission calculation.  

Mr Haron’s remarks follow the release of the Mortgage & Finance Association of Australia’s Industry Intelligence Service report, which revealed that, over the six months to March 2019, the national average annual gross value of commissions collected per broker dropped by 3 per cent when compared to the previous corresponding period, falling to a historic low of $128,709.

The decline was driven by a 10.6 per cent fall in the average upfront commission received by a broker, down from $75,604 to $67,554 – offset by a 6.9 per cent increase in the average annual gross trail commission received per broker, from $57,189 to $61,155.

Reductions in commission revenue have also prompted calls from both industry associations and aggregators for “fair and equitable” clawback arrangements.

Mr Haron and the Australian Finance Group’s head of industry and partnerships, Mark Hewitt, recently indicated that they would be lobbying for clawback reform during the consultation period for the federal government’s proposed best interests duty bill.

[Related: Broker commissions slide to historic low]

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Charbel Kadib

Charbel Kadib


Charbel Kadib is the news editor on The Adviser and Mortgage Business.


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