The head of a boutique aggregation group has slammed a number of recommendations made by Stephen Sedgwick on remuneration and believes one particular proposal “undervalues the role of a mortgage broker”.
In an open letter obtained by The Adviser, Specialist Finance Group managing director William Lockett expressed his “serious concerns” with recommendations 17 and 18 of the ABA-funded Sedgwick report.
Recommendation 17 suggests a holistic approach to broker remuneration broadly equivalent to that proposed for the performance management of equivalent retail bank staff.
“This, we believe, clearly does not recognise the substantial difference between retail bank staff and mortgage brokers,” Mr Lockett said.
“Retail bank staff are generally employees of the bank and can only recommend and sell their own finance products for their employer being a nominated bank,” he explained.
“The core value proposition of a mortgage broker is that they are able to provide a significantly broader level of finance products to the consumer as they assess their client’s requirements across a range of financial institutions and not solely one bank.”
Recommendation 18 suggests banks adopt approaches to the remuneration of aggregators and mortgage brokers that do not directly link payments to loan size and reflects a holistic approach to performance management.
While acknowledging that this is a recommendation only, Mr Lockett believes that, in part, it “undervalues the role of a mortgage broker.”
“The mortgage broker assesses their client’s requirements, which includes the loan amount and makes the application to the chosen bank, from this point on it is at the bank’s sole discretion as to whether the loan is approved or declined on the merits provided,” he said.
The Sedgwick report has been largely slammed by the third-party industry. Many have questioned the independence of a review funded by the Australian Banking Association that includes recommendations on how brokers should be paid.
The broking industry has also questioned the release of the report, which followed ASIC’s comprehensive review of broker remuneration that included extensive input from third-party operators including aggregators and mortgage brokers.
While both the ASIC and Sedgwick reviews cover similar ground, there are important differences. Mr Lockett noted that the ASIC report does not recommend removing the link between loan size and commission, nor fee for service, nor removal of trail commission.
“Whilst we acknowledge the role that the Australian Banking Association plays within our industry It is our view that the Australian Banking Association’s role on this matter is one that cannot be both truly impartial and independent,” he said.
“The financial services industry has greatly improved under the national regulations of ASIC and as stated above we fully support regulations in our industry but ones which do not unfairly target a select player within the industry being mortgage brokers.”
Mr Lockett stressed that the banks should only implement Sedgwick’s recommendations after detailed input and consultation from the third-party channel and where “common sense will prevail” for all parties, including mortgage brokers.
Aussie Home Loans chief executive James Symond told The Adviser that he is confident the banks will consult with the third-party channel before making any decisions around broker remuneration.
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.
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