The Mortgage & Finance Association of Australia (MFAA) has expressed serious concerns with some of the themes outlined in the Australian Bankers’ Association’s (ABA) Review, conducted by Mr Stephen Sedgwick AO, into commissions and payments, calling on banks to align with the “well-considered ASIC process” that is currently underway.
The association stressed that ASIC has recommended that the framework for the industry’s incentive structure should largely be left in place.
MFAA CEO Mike Felton said that while the ABA Review made a number of observations and recommendations regarding the third-party channel, it did not present realistic solutions.
“This is a review commissioned by the banks that aims to deal with the banks’ reputational problems, but as far as the broker channel is concerned does not create better consumer outcomes,” Mr Felton said.
“We are frustrated that this Review claims to be focused on a ‘customer-centric’ view. Brokers and aggregators already have a customer-centric view. Indeed, they are dependent on a relationship model and must focus on their customers in order to survive,” he said.
“The Review’s recommendations on the third-party channel appear to be based mostly on anecdotal evidence from its members. It is unfortunate that the Review process did not include meaningful consultation with the broader industry in developing this report.”
Mr Felton said there is no evidence provided in review that links consumer detriment to the current remuneration structure.
“This lack of poor customer outcomes has likely driven ASIC’s recommendation to leave the current commission structures in place, with a view to reviewing them again in four years to determine if consumer outcomes were affected by the potential conflicts identified by its Report,” he said.
“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, and that lenders are still responsible for lending.”
While the ABA Review assumes consumer detriment as a result of anecdotal evidence, Mr Felton pointed to MFAA data, which demonstrates that consumers are very happy with their brokers. The industry grew by 4 per cent in 2016, and 92 per cent of consumers reported they were ‘satisfied’ or ‘very satisfied’ with their broker’s performance, according to a 2015 Ernst & Young study.
“The data shows default and other metrics are closely aligned with outcomes driven by lenders’ staff,” Mr Felton said.
The MFAA boss further highlighted that the Sedgwick review recommends changes that go significantly beyond those recommended by the ASIC report, seeking to adjust or remove current incentives for mortgage brokers and potentially implement a lender fee-for-service approach.
“The ASIC Report does not recommend removing the link between loan size and commission, nor a fee-for-service model nor removal of trail commission — with good reason. A single, lender-funded, fee-for-service is likely to lead to a degree of standardisation of all fees, which ASIC is not calling for,” he said.
“It may also be considered anti-competitive by the ACCC, and therefore would not be able to be implemented. Ultimately, ASIC concluded these actions are not required because they do not create better consumer outcomes.”
The Review, which was released yesterday and included 21 recommendations, suggested that banks adopt, through negotiation with their commercial partners, an ‘end to end’ approach to the governance of mortgage brokers that approximates as closely as possible a holistic approach broadly equivalent to that proposed for the performance management of equivalent retail bank staff.
In effect, broker commissions would be governed by similar principles that banks would apply in assessing performance against a scorecard for their staff.
“Some commentary has questioned the role of ABA or the banks in this matter,” Mr Sedgwick noted.
According to Mr Felton, the Sedgwick review is essentially recommending a consolidation of power to lenders, giving them complete oversight of mortgage brokers.
“This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the big four and away from consumers’ interests,” he said.
Mr Felton said he believed the Review sought to re-interpret the ASIC report, providing unnecessary solutions to issues that ASIC had already reviewed and put aside.
“What really matters, in terms of remuneration, is the ASIC process and the regulatory outcomes from it. ASIC’s approach is considered and well-informed, and is based on extensive data and consultation with all parties,” he said.
CBA, ANZ and NAB yesterday confirmed that they will soon begin implementing the recommendations.
[Related: Major banks to change broker commissions]