Research firm Rice Warner has been criticised by an industry association for its “significant lack of knowledge” of the mortgage broking sector.
In an article released last week, Rice Warner said its analysis identified the capacity of the commission system to bias broker recommendations towards bigger loans and interest-only loans, which allow customers to borrow more for the same monthly repayment.
These assertions have been slammed by the FBAA’s Peter White, who pointed to the ASIC remuneration review, which showed the difference in loan sizes between bank proprietary channels and broker channels was only $31,000.
“When you examine the ASIC data further, based on LVR differences and property values, the difference in loan sizes is only $21,000,” Mr White said.
“So, we are not talking a $100,000 difference, but only $20,000-$30,000 and no broker in this country is prepared to risk their business and families over what is around $200 in year one and $46 in ongoing amortised trail.”
Commenting on the Rice Warner report’s claims about interest-only lending, Mr White said it is “fundamentally wrong” to say the borrower can borrow more for the same monthly repayment, because interest-only lending must service and qualify as a principal and interest only loan.
“So that comment is completely fanciful and shows a lack of knowledge of their subject matter,” he said.
Rice Warner took issue with trail commissions, arguing that it is difficult to see how paying trail commissions without any requirement for ongoing service can be in the best interests of consumers.
“Once again, the author of this research shows a significant lack of subject knowledge as trail commission is paid by lenders to brokers for the broker to continue to service the needs of the borrower,” Mr White said.
The FBAA’s response comes after MoneyQuest managing director and former Mortgage Choice CEO Michael Russell slammed the Rice Warner article, saying that its insights reveal a complete lack of understanding of just how the broking remuneration structure plays a pivotal role in the health of a competitive mortgage market in Australia.
“Rice Warner’s criticisms of the ASIC review, the present broker remuneration model and the quality of advice provided by mortgage brokers is testament that since its inception in 1987 it has immersed itself in the financial planning industry and never ventured outside of it,” Mr Russell said. “Fortunately, ASIC understands this well,” he said.
[Related: Broking boss hits out at commission claims]
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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