Commissioner Hayne’s call for a borrower-pays remuneration model and introduction of a “best interest duty” for brokers will not destroy the viability of the broker proposition, Deloitte has said.
According to Deloitte’s analysis of recommendations in the banking royal commission’s final report, a move to legislate Commissioner Kenneth Hayne’s call for a borrower-pays model in the broking industry would not threaten the industry’s place in the mortgage market.
The consultancy firm claimed that the proposed reforms could serve as “opportunity” for the third-party channel.
“Some in the mortgage broking industry will be tempted to fight the commission’s findings and recommendations,” Deloitte stated in its report.
“It may be that changes to remuneration structures, combined with additional process and infrastructure requirements, will make some brokers decide to work elsewhere.”
Deloitte continued: “However, unlike some, we do not believe that these recommendations necessarily sound the death knell for the industry.
“While there will inevitably be pain in the journey, this is an opportunity in the long run for the broking industry to demonstrate to consumers, regulators and lenders that they will embrace the opportunity to demonstrate impartiality and separation from product providers to fully align to customer service and outcomes.”
Deloitte, however, warned that it is “critical” that policymakers “progress with care” and “focus on protecting robust and healthy competition in the market”.
“For as long as the playing field is level, and it is as easy and cost-effective for a consumer to arrange a loan via broker as it is with a lender, the customer service proposition that has underpinned the broker industry for many years should see the industry remain robust,” Deloitte added.
“It is imperative that it does so, and that it is supported by lenders, regulators and government to ensure the health of competition in the mortgage market, access to credit, and that consumer outcomes align to their preferred distribution model.”
Despite expressing confidence in the longevity of the broking industry, Deloitte noted its support for the removal of trailing commissions, claiming that brokers were being remunerated in such a manner without providing a service to customers.
“Removing trail commissions will resolve any conflict, inherent or perceived, of ‘binding the borrower to the lender’ or ‘money for nothing’,” the report reads.
“While there are differing opinions on how true this statement is, and the potential impact on churn that removing trail commissions may have, it is important that the industry appreciates that receiving a payment when no actual service is provided is unacceptable.”
The broking industry has strongly opposed such changes, with industry leaders flagging the risks of structural changes to the broker model on competition in the mortgage market.
The industry has also launched campaigns promoting the broker proposition, with the Mortgage & Finance Association of Australia funding a “Don’t Kill Competition” campaign, which aims to demonstrate to a mass audience the negative ramifications of potential policy changes.
Brokers have also launched grass-roots campaigns, which include petitions with over 40,000 signatures.
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.
Charbel Kadib is the news editor on The Adviser and Mortgage Business.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.
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