Following the release of the banking royal commission’s final report, several aggregator heads have voiced dismay at the report findings but revealed that industry is ramping up for a major charge on the value of mortgage broking.
Following the release of the final report from Commissioner Hayne, several aggregator heads have echoed the shock, anger and disappointment felt by the heads of the broker associations in relation to the final report recommendation, but have suggested industry is ramping up for a new offensive.
Speaking to The Adviser, Connective director and deputy chair of the Combined Industry Forum, Mark Haron, said he was “extremely surprised” by the extent of change the commissioner recommended, particularly as his call for the removal of all commissions – both upfront and trail – was “completely at odds with the value that mortgage brokers have”.
He commented: “What is surprising and concerning is the lack of actual evidence of significant misconduct that mortgage broker remuneration has caused for consumers, particularly in light of numerous amounts of misconduct pointed out from various other aspects of bank behaviour. It seems that a lot of that seemed to go largely unaddressed.”
“The model for how mortgage brokers are paid is not fundamentally broken. There is always room for improvement, but broker remuneration has been scrutinised in multiple reviews over recent years, with none of these studies finding systemic misconduct and none advocating substantial reform,” he said.
“Changing how mortgage brokers are paid will do more to reduce competition than it will to address any misconduct. The royal commission was set up to address misconduct, not to tamper with competition,” he said.
Likewise, AFG said it was “disappointed” by the weight placed on comments by the CBA about mortgage broker remuneration models, echoing concerns that these comments were designed to win market share.
The aggregator has, however, welcomed the announcement of a set time frame for the industry to demonstrate the clear benefits the mortgage broking industry provides consumers so that information can be shared and the industry can define its effectiveness across the market.
AFG chief executive David Bailey said: “Both the government and opposition highlighted the need for any changes to the mortgage sector to be introduced in a phased and considered manner.
“At a time when navigating the complexity of the Australian mortgage market is more difficult than ever for consumers, there is a danger the proposed changes, if not handled properly, could place assistance out of reach for some customers. Those hardest hit will be low-income earners and the changes could deliver pricing power and higher margins back to the major banks,” Mr Bailey warned.
Loan Market chairman Sam White revealed that when he first read the royal commission report, he felt he was “reading Matt Comyn’s admission to the royal commission”.
Speaking to The Adviser, Mr White said: “I’m disappointed that the banks appear to have been lashed with a feather duster whilst we seem to have been made scapegoats… It’s proof that the Australian banking lobby group is incredibly strong.
“When I sat back and read it, I was really disappointed to see that Commissioner Hayne had said that brokers get trail for doing nothing, when he didn’t speak to anyone, he didn't speak to a broker and didn’t speak about the hard work brokers do to get clients refinanced and the work they do on repricing their mortgages. He didn’t talk about the annual review that they do.
“So I was disappointed that he made such broad statements without seeming to ask the questions or speaking to brokers… Because how can you have a review into misconduct – where we saw the banks behave the way they did – and the solution from the commissioner is to effectively say to the customers: ‘Look, the solution to all this bad behaviour from the banks is to get the customer to pay another fee’. I don’t understand how that works.”
Ramping up messaging
However, the groups have been working to demonstrate the true value of the broker industry and are committing to take the message about the competition, convenience and care that brokers provide Australian borrowers – with further collaborative work expected to be announced later this week.
“Examining the culture and conduct of the entire financial services sector was the right thing to do. However, we also think it’s critical to acknowledge the work already done to improve customer outcomes in the mortgage broking sector,” said Connective’s Mark Haron.
“Choice matters for Australian home buyers and it has to be protected; choice fuels competition and competition should keep all the players honest and accountable. Removing access to choice and competition in the home lending sector is simply handing more power back to the major banks, which is exactly what Australians don’t need,” he said.
The Connective director told The Adviser that he does not believe commissions should be removed and that the group would be “fighting tooth and nail to ensure that the commission structure stays as intact as it can”.
“I think the industry bodies and the aggregators have plans in place as to how to make sure that the message of the day is about the value that mortage brokers provide and that this gets across to government. There will be ample opportunity for brokers to get involved with those discussions and amplify them and utilise their customer bases to help ensure that the message to Canberra is that customers are happy with their brokers, customers are not concerned about current broker remuneration.”
He added: “We’re working hard to ensure that politicians understand that customers are very happy with the current model whereby the banks are paying for them to get access to credit and credit assistance.”
Mr Haron emphasised that the Combined Industry Forum’s reforms will continue to focus on being transparent around remuneration and “form a large part of our thrust upon the government to show that the industry can and is doing its part to ensure that remuneration is much clearly explained to customers and delivering good customer outcomes.”
AFG has also said it will work with industry bodies to ensure any recommendations are implemented in a way that improves outcomes for customers.
As industry will now be taking the fight to policymakers off the back of the final report from the banking royal commission, Mr Bailey stated that he hopes it will result in a “considered regulatory response that understands the home lending market and implications for all parts of the economy”.
He said: “With market share for the mortgage broking sector at an all-time high, customers clearly trust mortgage brokers. This fact should be front and centre in the minds of policymakers.
“The royal commission has created an opportunity to restore trust in the broader financial services sector. It is crucial that the transition to a new policy and regulatory landscape is a considered process to ensure any changes deliver better outcomes for customers.
“Leaving consumers and the economy worse off, which is a real danger if we don’t get this right, would undermine the whole royal commission process.
“Our response will be framed by a commitment to shareholder value and ensuring a competitive mortgage sector. Without competition, home buyers will be left with less choice and higher costs of borrowing.”
The CEO of Mortgage Choice, Susan Mitchell, also said that the royal commission recommendations regarding broker remuneration “need to be thought through carefully by the decision-makers”.
“The proposed changes could have a large impact on the mortgage broking industry and therefore competition within the home lending sector. Ultimately they could give more pricing power to the major banks, which would lead to less choice, less access to credit and higher interest rates for consumers,” she said.
“Mortgage Choice is committed to working with industry policymakers to ensure that consumers will continue to have access to competitive pricing, choice and the expertise they have come to expect from their mortgage broker.
“Mortgage Choice is also committed to supporting the small businesses across Australia that make up the mortgage broking industry and supporting the vital role that they play,” the CEO added.
More details about the industry’s efforts in championing the broker cause are expected later this week.
Find out more about what the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry means for the broking industry, and what the next steps are, by attending the Better Business Summit 2019.
Running across five different states every Thursday from 14 February, the Better Business Summit provides brokers with straight-talking, practical advice to help them grow and improve their businesses in this time of change.
Tickets are selling out – so make sure you secure your ticket today to stay ahead of the curve and prepare your business.
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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