A Deloitte partner has highlighted the positive outcomes of the ASIC and Sedgwick reviews into broker remuneration and their collective endorsement of a ‘lender pays’ commission model.
The ABA-funded Sedgwick report, which made a number of recommendations regarding broker remuneration, was largely criticised by the third-party channel. Both the MFAA and FBAA expressed their concerns with Sedgwick's findings.
However, Deloitte financial services partner James Hickey argues that both the ASIC review and Sedgwick report are a positive for the sector.
“If we look at the ASIC review, the key positive to come out of it was that there is no smoking gun in the broker industry,” Mr Hickey said.
“There is no fundamentally broken advice model and no clear evidence of bad customer outcomes. Both reviews found that, which I think is a clear vote of confidence in the industry and the current delivery model to customers. That was a real positive and put to bed any concerns that there was a systemic underlying issue out there,” he said.
Another positive to come out of both reviews, according to Mr Hickey, was their collective endorsement of the current ‘lender pays’ model. Prior to the release of the ASIC review, many in the industry feared that commissions would be scrapped in favour of a fee-for-service model.
“Sedgwick was quite prescriptive about that and said that the model should remain a lender pays model and not a customer pays model,” he said.
ASIC suggested some tweaking to the current model, but also found that there would be no systemic changes necessary to how brokers are currently paid.
Mr Hickey said these are “powerful findings” that support not only the role brokers play in the marketplace, but also the role they play in fostering competition.
“If you were an external party looking at the mortgage market in Australia, where half of loans are written by brokers, and you are trying to look at mechanisms that could dramatically change that sector, neither review has identified those or suggested that they need to change.”
Both the ASIC and Sedgwick reviews recommended that ‘soft dollar’ and volume-based incentives (VBIs) be scrapped. Following the release of these highly-contested reports, Mr Hickey believes the industry now has the opportunity to fortify its position in the mortgage market.
“The industry should work through ways to ensure that, while there is no systemic issue at the moment, there is no chance of one emerging in the future with regards to the peripheral aspects to remuneration,” he said.
[Related: 'Order taker' brokers unlikely to survive]
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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