Drastic changes to broker remuneration would cost borrowers “significantly more” and “put the market back 30 years”, 1300HomeLoan founder John Kolenda has warned.
As the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry begins its second round of hearings, this time looking at financial advice, the founder and managing director of 1300HomeLoan and Finsure Finance and Insurance, John Kolenda, echoed a warning of the potential ramifications of drastically changing broker remuneration.
Following on from several strongly worded statements issued by many in the broking industry recently, Mr Kolenda said that the industry needs to “stand tall” and continue to fight for their customers in the face of “criticisms, innuendo, self-interest and ill-informed commentary”.
Touching on recent commentary around broker remuneration, including the Productivity Commission’s widely criticised draft recommendation of a “fee-for-service” model for the broking industry, Mr Kolenda said that such drastic changes would only benefit the major banks and disadvantage consumers who would be denied access to brokers without having to pay a fee.
“The mortgage broking system is working well and is heavily scrutinised by the Australian Prudential Regulation Authority (APRA) and ASIC,” Mr Kolenda said.
“Any moves to change the commission-based system will only damage the broking industry and leave consumers without the adequate support and guidance to obtain the most competitive home loan.”
He continued: “Any drastic change to overall remuneration economics will put the market back 30 years and see consumers paying significantly more each month… We need to be very careful that any major structural change does not materially impact consumers in a negative way, making home loans more expensive and/or dramatically reducing borrowing power which will flow right through the entire economy.
“This could produce unintended consequences that means consumers pay much more and the economy slows down.”
The founder of the mortgage broker-owned home loan brand also highlighted the work that the Combined Industry Forum has been doing to satisfy the recommendations made by the Australian Securities and Investments Commission (ASIC) in its remuneration report last year, stating that he believes the proposed changes would “allow the continued support of consumer best interests”.
Noting that the current lending landscape has become a “minefield”, with rate disparities often between 0.5 per cent and 1.0 per cent and varied qualifying criteria, Mr Kolenda asked: “How can consumers navigate through the more than 3,800 offerings in the marketplace without the assistance of brokers?
“A consumer dealing directly with a lender has limited negotiating power or knowledge of the interest rates and lending criteria offered by competitors. A mortgage broker with access to a panel of lenders drives competition between lenders to the benefit of all consumers.”
The Finsure head went on to highlight that more than half of all mortgages are originated by the industry and that brokers have helped reduce lender margins by 2 per cent, saving consumers more than $30 billion a year.
He therefore said that the ongoing debate over broker fee structures should consider the impact on the broader broker market and on the potential change in dynamics between smaller and larger lenders.
“The main consideration should always be the consumer and their access to products and services from a broad range of lenders which can compete for consumers business,” the executive said.
“The foundation of the broking industry is the customer comes first. Even the major banks have acknowledged that brokers are instructed by and act on behalf of the customers.”
He concluded: “Brokers have been pivotal in driving competition, transferring the power from the major banks, supporting the smaller banks, regional banks and non-bank lenders and putting the power back into the hands of the consumer.”
The Productivity Commission is expected to hand its final report down to the government by 1 July 2018, while the royal commission will release an interim report by 30 September and a final report by February 2019.
Annie Kane is the editor of The Adviser magazine, Australia’s leading magazine for mortgage brokers. As well as writing news and features on the Australian mortgage market, financial regulation, fintechs and the wider lending market – Annie is also the host of the Elite Broker podcast and regulator contributor to the Mortgage Business Uncut podcast.
Before joining The Adviser team at Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.
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