Stephen Sedgwick is not qualified to make any recommendations about broker remuneration, argues the head of an industry association, who has slammed the review for not consulting the third-party channel.
Speaking to The Adviser, the FBAA’s Peter White said the release of the ABA-funded Sedgwick review is making recommendations to banks, which “seem to be taking it as gospel”, and influencing regulators before any decision has been made by ASIC, Treasury or the minister.
Mr White stressed that the report, which makes a number of recommendations about mortgage broker remuneration, has been released before the consultation process for the ASIC’s review into broker remuneration has concluded. All four major banks have already agreed to implement all of Sedgwick’s recommendations.
According to Mr White, the ABA initiated report was authored by a public servant who is not qualified to make recommendations to change remuneration in mortgage broking, particularly after he agreed with ASIC that there is no evidence of poor customer outcomes.
“Mr Sedgwick is a career public servant who has never worked in lending. It is nothing against him as a person, but I do not feel he holds the right skills or qualifications to be making the determinations that are being made about our industry,” he said.
“The banks and the ABA unquestionably must stop this attempted regulatory manipulation through the Sedgwick report and allow the works of ASIC and Treasury, and then the minister, to make the appropriate determinations without manipulation driven by self-interest, greed and poor consumer and industry outcomes."
Mr White fears that the review could lead to the destruction of an industry that has turned lending into a competitive sector in this country.
“We seem to forget the evolution of the lending market through the third party channel. We risk setting the clock back 30 years,” he said. "It was mortgage brokers and non-banks in the early 1990’s that positively changed the lending landscape forever.
“Research is one thing. Making recommendations is over and above that. I have grave concerns. The reality is that what has been proposed is completely unworkable and doesn’t make commercial sense.”
While the big four banks and a number of regionals have agreed to implement Sedgwick’s reforms, Mr White says there are a number of banks who don’t agree with the review. The FBAA boss went on to question the speed with which the majors agreed to implement Sedgwick’s 21 recommendations.
“Why have a number of banks come out and agreed to implement this immediately? What is the hidden agenda? For some banks it could take a major change in their technology infrastructure.”
CBA was one of the first banks to respond to Sedgwick's final report, agreeing to implement all recommendations by next financial year. Mr White noted the bank's recent move to "withdraw investment lending from the mortgage broker sector, while still offering such loans at its own branches".
Setting aside Sedgwick's recommendations around ‘soft dollar’ and volume-based incentives, which ASIC also flagged should go, Mr White said there has been no transparent model put on the table with regard to changes to broker commissions.
Further, he believes the broking industry was not consulted during the review.
“There has been no industry discussion. I know banks that were not involved in the discussion. I know we weren’t consulted. So where does the expertise and knowledge of broking come into being to actually make the fundamental recommendations that are being made?” Mr White said.
Following the release of the initial Issues Paper on 17 January, the review approved 13 submissions to be made publicly available.
One of these, from major aggregator AFG, argues that the inclusion of broker remuneration in Sedgwick’s review is “inappropriate and misguided” given the work currently being undertaken by ASIC.
“The review does not have information gathering powers or resources equivalent to ASIC and should not risk reducing confidence in its findings by referring to, or basing recommendations on, isolated anecdotal statements,” AFG said in its submission.
“This is even more important where information has not been gathered in the same way from all relevant industry participants and leaves the review open to allegations of bias or partisanship.”
AFG argues that there is also a significant risk of the review drawing false conclusions with respect to broker remuneration due to the “limited and one-sided nature” of the investigations that the review has undertaken with respect to broker commissions.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
The brokerage has been acquired by broker and Cliff & Moss fo...
The aggregation group has formed a new partnership with software ...
Major brokerage Aussie has said that it will increase the number...