Not all hope is lost for mortgage brokers as there is still time to bring “sense and balance” to the remuneration debate following Commissioner Hayne’s recommendation to remove trail commissions, according to the head of a broker association.
In a letter sent to members of the Finance Brokers Association of Australia (FBAA), managing director Peter White called for the industry to “pause and review the current situation and what needs to be done” to help prevent Commissioner Kenneth Hayne’s proposal to abolish trail commissions from being implemented.
While Treasurer Josh Frydenberg said the government would be taking action on all 76 recommendations, Mr White maintained that there is still time to “bring sense and balance” to the broker remuneration debate.
“These are recommendations only, and a lot of legislation has to be passed before they become reality,” the FBAA managing director stated in his letter.
“The conversation over trailing commissions has not finished.”
He continued: “The Morrison government has acknowledged that the recommendations need reviewing and Labor – for all its political posturing – will gain no political advantage from an attempt to destroy an industry as valuable to the nation as ours.”
Mr White noted that Commissioner Hayne’s recommendations on mortgage brokers would also impact aggregators and non-major banks who would not be able to afford to set up “hundreds of branches to compensate for the loss of the broker channel, which would surely happen if fees replaced commissions”.
“Many expert commentators have slammed this report, noting that if these recommendations are implemented, competition will decrease and the big banks will be the winners,” he added.
The managing director also remains adamant in his view that upfront commissions will remain and that a consumer-paid fee-for-service model will not be implemented.
“If these are seen as fighting words, be assured they are. But this is also a rational and measured response when all things are considered,” Mr White wrote.
“We will not allow you – or for that matter, any other broker who is also a vital part of our industry – to be the victim of what can only be described as a poorly drafted response by a commissioner who clearly was out of his depth when it came to understanding the role of our industry.”
The FBAA managing director called for brokers and people in their networks (including clients) to sign a petition urging the government to consider the negative implications of banning trail commissions and mandating a fee-for-service model.
The petition notes the two ways in which home buyers would be “penalised” if the recommendations are implemented.
“Either they will be unable to afford the proposed fee-for-service structure, resulting in a reduced ability to access the funding that is right for them; or those that can afford the proposed fee-for-service structure will be forced to absorb significant costs that the banking sector were previously responsible for,” the petition reads.
Further, the petition points out that abolishing the commissions paid by lenders to brokers will also “put billions of dollars back into the [big four banks]”, while introducing a fee-for-service model will “[transfer] the responsibility of those costs to aspiring property buyers already making the most expensive purchase of their life”.
During a press conference on Monday (11 February), Prime Minister Scott Morrison voiced his support for the broker channel, acknowledging the important role they play in the mortgage market.
“I want to see as many mortgage brokers in this country five years from now, in fact, more than there are today,” he told the National Press Club.
“I don’t want to see this sector wither on the vine and be strangled by regulation that would throw them out of business, but more importantly, would deny choice and competition in the banking system.”
The Prime Minister continued: “If there is one thing that we have learned through this process, it is that we need more competition. We need more options. We need more choices. Not fewer. And that is what the Treasurer and I are concerned about in terms of how we would go forward on that one recommendation [on broker remuneration].”
[Related: Prime Minister backs broker channel]
Tas Bindi is the features editor for The Adviser magazine. She writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.
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