Introducing a “best interests” duty for brokers would have the unintended consequence of reducing competition and be a “bad outcome” for consumers, the chief operating officer of a mortgage marketplace has warned.
Speaking at a breakfast event hosted by the Australian Computer Society in Sydney on Thursday (15 November), the chief operating officer of mortgage marketplace HashChing, Siobhan Hayden, provided an overview of how the fintech is providing more transparency in the mortgage process and benefitting consumers by partnering them with qualified brokers.
Following the update, Ms Hayden commented on how brokers were a key channel for consumers, particularly given the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Ms Hayden said: “When there’s noise in the market [for example, with the royal commission], people get confused and need help from professionals — so that is good outcome in relation to consumers seeking assistance from brokers.
“I’m a big advocate in the broking network and think they’re doing an amazing job.”
However, the COO warned of unintended consequences that could manifest from some of the conversations being had around changing the duty applied to mortgage brokers.
On 28 September, the interim report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was released.
One topic that the commission asked the market centred around whether it would be “desirable to prescribe that some or all of those who are not employees of banks, but deal with bank customers, must act in the interests, or the best interests, of the client”.
“In particular, what duty, if any, should a mortgage broker owe to the prospective borrower? Is value-based commission, paid to the broker by the lender, consonant with that duty? Should a mortgage aggregator owe any duty to the borrower? Again, are the remuneration arrangements for aggregators consonant with that duty?” the commission asked in its interim report.
Speaking about the suggestion to potentially lift the current legal duty for brokers (from finding a loan that is “not unsuitable” to finding one that is in the “best interests” of the customer), Ms Hayden conceded that the current duty might sound “a bit lacklustre or a low hurdle” but added that a best interest duty would be more damaging than beneficial.
She said: “What they’re talking about bringing in is a duty for working in a client’s ‘best interest’, which they’ve done in the UK (and [Australia] does follow the UK quite extensively).
“But ironically, what that does is deliver a bad outcome to customers. It sounds bizarre. But because, by definition, [a broker has] access to 5,000 products, they’ve got to prove that 4,999 are not in a customer’s best interest and therefore a broker would struggle to do their job in a relatively good time.”
Ms Hayden warned that this would result in brokers “truncating” their lender panel down to six or seven lenders so that they could make the appropriate checks of each of their products.
“So, while it sounds like a better [duty], and it’s a great headline comment, what would actually happen is that brokers’ behaviour would result in them reducing their lender panels which is not great for customer[s],” Ms Hayden added.
The HashChing COO also noted that lenders are now moving to a new commission model based on drawdown amount (net of offset) rather than limit (which she suggested was more favourable than fixed fees, which could “materially implode the broker channel”), adding that there has been “no better time for brokers to look at their own business model and work out: ‘How do I do things differently now that everything around me is changing?’”
During the breakfast meeting, Ms Hayden also provided an update on how HashChing is seeking to deliver on its “aspirations of being the number one financial marketplace for Australian consumers”.
Noting that HashChing obtained an Australian Credit Licence (ACL) in June of this year, the COO said that the platform aims to roll out a HashChing-branded white label home loan, as well as a white label business loan and home improvement loans.
Other tools that HashChing will look to roll out next year include:
HashChing is also reportedly working to launch into the UK market within the next 18 months.
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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