Following four days of public hearings for the Productivity Commission’s inquiry into competition in the finance sector, we take a look at what the commission has learnt — and what we have learnt from them.
Having watched the public hearings in Sydney and Melbourne over the past week, we’ve learnt a lot about what the Productivity Commission thinks about the whole process of data gathering and how different parts of the industry work.
We already knew through the draft report that the commission had struggled to find the data it really wanted on many aspects of the finance industry and therefore relied heavily on external sources of information for its 600-page draft report (a fact that ASIC also highlighted in its review of broker remuneration last year).
Indeed, at several occasions over the course of the public hearings, the commission called for more information, further data and more transparency from parties in order to help it form clearer opinions on what was needed to drive competition in the finance industry.
More surprising, however, is the fact the commission conceded that they were looking at the industry from an outsider’s perspective, with chairman Peter Harris openly acknowledging on several occasions that they didn’t understand why things operated in the way they did.
Speaking to consumer group CHOICE, Mr Harris touched on mortgage comparison rates and said: “People say to us: ‘You carry a burden of ignorance’. And we say: ‘Yeah, we do’ [but] can someone tell us why this is the case?’ And again, it’s hard to work out.”
It’s an unenviable task — reviewing the way the whole finance industry works in a matter of months to try and establish whether competition can be improved. But it’s made all the harder by the fact that the commission was repeatedly asking the wrong (and in several cases, very convoluted) questions to the wrong people.
One of my main frustrations watching the hearings over the past few days (and perhaps it’s because I’m a journalist) was that the commission seemed unprepared, asking long-winded questions (that appeared to be made up on the fly) to people who had little to do with the topic in question.
For example, the commission asked CHOICE, a consumer advocacy group, whether banks would be interested in “new style broking arrangements that offer back to consumers a bit of a rebate”, whether “alternative forms of remuneration” would develop if financial advisers entered the channel, and whether the comparison rates for mortgages include the upfront rate to a broker.
These questions, surely, should be asked of the lenders themselves — or at least of a player in the broking industry (though it should be acknowledged that CHOICE stated on several occasions that it was not in any position to comment).
But credit where credit is due, the commission did seem to listen to the evidence that was given to them.
They applauded the FBAA’s Peter White for bringing to the table data regarding the cost of mortgage brokers versus bank branches (something they had said was not forthcoming from the banks themselves), and they listened to Mr White and MoneyQuest MD Michael Russell when they spoke of the benefits of trail and the damaging effect of clawbacks, and why any consideration of removing trail would be incredibly damaging to the broker sector.
But given that this inquiry is into the finance industry as a whole, a disproportionate amount of time was spent at the hearings talking about trail commissions, mortgage brokers’ duty of care, mortgages, lenders mortgage insurance and whether financial planners should be given the ability to offer credit advice.
Even when the big banks were at the hearings, there were few questions about barriers to entry for new players — the first of the commission’s own draft recommendations.
Nor was there much content around: SME lending; phasing out distortionary insurance taxes; transparency on insurance underwriting; comparative pricing information on insurance renewal notices; statements of expectations for regulators; transparency of regulatory decision making; robust and transparent analysis of macro-prudential policies; or the regulation of purchased payment facilities — all of which were also draft recommendations in the report.
And finally, despite the commission putting broker commissions (which are hard earned) under the microscope, there was little reaction when ASIC emphasised that there is a growing industry of “referrers” who are paid commissions of a similar size for doing much less work.
In summary, I believe that mortgage brokers will undoubtedly form a major part of the Productivity Commission’s final report to the government — and that trail will certainly be a main focus.
But here’s hoping that the arguments for the benefits of trail are enough to help convince the commission that they are needed to ensure good consumer outcomes. Even if it means that they are tied to key performance indicators. Given that brokers provide more than half of all of Australia's mortgages, this would - in the end - achieve what we are all looking for; improved competition and more power to the consumer.
The commission has been consulting with the industry for the past few weeks and will be reportedly utilising the evidence given in the hearings to help form the final report to the government, which will be issued in July 2018.
Those wishing to make a submission to the PC and provide feedback to its draft report are being asked to do so before 20 March 2018.
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