Several leading representatives of the aggregation and broking groups have welcomed the outcome of the federal election, with the broker market now shifting its focus to the definition of a best interests duty.
Speaking to The Adviser as the dust was settling on the federal election results, several leaders from the aggregation and franchise groups outlined their surprise at the outcome of the federal election – but added that it marked a clear path for brokers moving forward.
Looking to the future, a common theme emerging was that the industry would now be hard at work to develop the details around the Coalition’s responses to the royal commission that impact the broker market, such as the introduction of a best interests duty.
Speaking to The Adviser on Monday (20 May), CEO David Bailey said that the result was “astounding” and “amazing” given the election polls and general sentiment that the election was “unwinnable” for the Coalition government.
While Mr Bailey said that the aggregation group “had a level of confidence that [it] could work with both sides of government”, he said that the fact that the Coalition government has not recommended any major changes to remuneration means that “there is less uncertainty and people can go on and continue to run their businesses without that cloud of uncertainty hanging over them”.
“So, to that end, it is a positive result for brokers,” Mr Bailey said.
Looking forward, Mr Bailey said that one of the things the industry should now concentrate on is “to ensure that the message about brokers and the benefits they provide to consumers and the market more broadly never gets forgotten”.
He added: “We’ve always had a broad undertaking at AFG to engage with politicians at the right levels at the appropriate times. Front and centre now is the definition of what best interest is. And we would look to have those conversations and also recognise that the definitions of best interest goes glove in hand with remuneration.
“Because, if you are going to ask a broker to do even more work and you want to ensure the longevity of the broking industry, which both parties do want to do, you need to make sure there is not a disincentive for new brokers to enter the market or existing brokers to leave the market because the regulatory burden is too much.”
According to Mr Bailey, a good starting point for a best interests duty for brokers would be the “good consumer outcomes” priority, promulgated by the Combined Industry Forum.
“It’s clear that best interests for mortgage broking should be different from a best interests for financial planning, so if you start from the basis of a consumer, which is where every proposition should start, you move down that path to finding a best interests test [that] suits all parties,” he said.
Likewise, the CEO of Aussie Home Loans, James Symond, told The Adviser that he, “like the rest of the country, was pretty shocked to see the Coalition get voted back in” but added that it was a “huge win for the broking industry” as the Coalition’s policies were “steady as she goes and more evolutionary than revolutionary”.
Mr Symond said he also believed that the Coalition had gained better support from the broking industry not just because they supported the status quo for remuneration, but also because Labor was not having “quality traction from a communication point of view” and the industry “did not understand clearly where they sat, whereas the Liberal Party was so much more communicative with the broking industry”.
The Aussie CEO added that the broking sector had made significant inroads with politicians over the past year and that he believed this level of engagement should continue.
He told The Adviser: “The broking industry did a wonderful job in unifying together to spread the message of what we do and why we do it and how consumers benefit. I’ve been in this industry for 27 years and I’m very proud to look back and see how all echelons of the industry gelled together.
“Moving forward, I think that some great relationships were made with local MPs by broking groups and brokers and they should be sustained. Those relationships will prove valuable in the future, not just in the past.”
Meanwhile, Connective’s director, Mark Haron, said he was “pleasantly surprised” about the outcome of the “very, very tight contest” and agreed that it was a “good outcome for the mortgage broking industry”.
However, Mr Haron said that there is a “considerable amount of lobbying to go” and “still significant scope for a best interests duty, which will be getting introduced”.
“As an industry, we have to work hard to ensure that that best interests duty is one that absolutely leads to good customer outcomes but, secondly, preserves competition in the industry. So those are the key components that we need to ensure that any legislation being considered within the next term are done properly,” he told The Adviser.
“Ideally, it would be great to have that in place before the end of this term so we don’t go into another election with the best interests duty or changes to mortgage broking industry being an election issue. We want to make sure we have things lined up before the next election so it doesn’t become a play thing for the Labor Party,” he said.
Mr Haron, who is also deputy chair of the Combined Industry Forum, said that it would continue to work on the best interests duty in the coming months and how clawbacks play into it.
“We will still be working through a process of engagement with government and Labor and work within the political framework to ensure that when the best interest duty legislation is introduced, it is something that is fair, reasonable and workable - both delivering good customer outcomes and preserving competition. “
He added that work will also continue around the upfront payment and payments net of utilisation and net of offset.
“There has to be a lot more structural change applied to that. It may or may not require government intervention to ensure that banks are applying that in a fair way, but certainly, at this point in time, there are a lot of broker/aggregator consultations and discussions to ensure that any banks that were not getting it right, will get it right in the future.
“A lot of banks were waiting to see what happened in the election in regard to see whether any significant structural changes needed to be made to commissions, which obviously there would have been under a Labor government. Now that this is not the case, the lenders can go about fixing up those upfront payment structures and ensure that they are implementing the systems to make sure that those payments were made on time and accurately,” he said.
John Kolenda, the managing director of the Finsure Group, also outlined that he believed the federal election result was a “victory for the mortgage broking sector”, particularly given the “months of uncertainty following the misguided recommendation from the Hayne royal commission to remove trail commissions”.
“The Coalition win means our industry can move forward with much more confidence and consumers will continue to benefit from having the expertise and experience of brokers at their disposal,” he said.
“If Hayne’s recommendations had been legislated, the market would have been put back 30 years and consumers would have been at the mercy of the major banks and forced to pay significantly more each month.
“While the election has proven to be a good result for brokers, we need to keep the pressure on the politicians to ensure our industry remains in a strong position to support consumers,” Mr Kolenda added.
In a video update to brokers following the election result, the executive chairman of Loan Market, Sam White, voiced his surprise at the weekend’s results, saying it was “a once-in-a-generation type of upset” but a welcome one.
“It’s the first time in four years that we now have confidence in what our remuneration model will be. That means that you can now have confidence in your business, what you invest in, how you think about it in the medium and long term,” Mr White said.
Touching on the best interests duty, Mr White said that industry will “work through with regulators and industry associations”, adding that he was “confident that we will get good outcomes on that”.
“But [it’s] great news that you don’t need to worry about how we are getting paid going forwards, [the] status quo will remain and how good is that?”
Mr White continued: “We faced a few headwinds: the uncertainty of the royal commission, the declining property market, the banks changing policies. I think they will start to get more consistent, because this election takes away so much uncertainty that was overhanging the market. So great news. If you were thinking about doing something, now is the time. If you were waiting before, you don’t need to wait any longer.”
The head of Loan Market added that the fact that Labor’s negative gearing changes had been taken off the table would also likely see investors coming back into the market and that brokers should therefore start educate investors on what brokers can do for them.
Likewise, over at Smartline, CEO Sam Boer told The Adviser that the “immediate response from the stock market today shows that most people think it is a good outcome and certainly it’s a good outcome for our industry”.
“It gives us some certainty, so businesses can start investing again,” he said, adding that the Coalition had been “prepared to work and consult with the industry through the campaign” and had “listened and taken on board what we had to say”.
“I think the fact that we have a government that is prepared to work with our industry is a fantastic achievement,” he said.
Mr Boer told The Adviser that one of the lessons learned through “this whole dark chapter of the industry’s history is that we need to do a better job of explaining who we are and what we do for what we earn”.
Congratulating brokers and groups for engaging with politicians since the royal commission, he said that while people had started to understand the value of brokers, the industry “should not be complacent but continue to work on that”.
“The best interests regime that is coming, we will have ongoing compliance, ongoing scrutiny, if not ongoing challenge around our remuneration model, so we shouldn’t assume that things are just going to just go back to the way they were. The world has changed and the opportunity now is for us to rise to the occasion in terms of our professional standards.”
The Smartline CEO continued: “I think self-regulation is of vital importance for our industry, and the reform work that is going on through the Combined Industry Forum must continue and we must continue to work with Treasury and all sides of government to ensure they understand the value that we bring to consumers, home buyers, property investors and how we enable competition and lenders that rely on this market.
“I think one of the real challenges for us that we are going to have to be very mindful of and work through in self-reform is to make sure that when we are working on best interests, we don’t inadvertently restrict competition if we end up with the wrong solution. I think there is a risk that that could happen. So we need to make sure we deliver on best interests but at the same time continue to support all lenders in the Australian marketplace,” he said.
Mr Boer added that there were also a “whole range of issues” involving the best interests duty and clawbacks, but said it formed just “one small element to the broader best interests challenge”.
Yellow Brick Road
The executive chairman of Yellow Brick Road, Mark Bouris, also spoke to The Adviser on Monday (20 May), saying that it was a “very good result for the mortgage industry”.
“Clearly, we were lobbying the Liberal Party and the Coalition in this regard, hoping they will win because they made it clear that they were not going to adopt the recommendations to remuneration for brokers out of the Hayne royal commission.”
“There are things that they probably will adopt, like the best interests duty, etc. but the remuneration part is the part that the Coalition has made pretty clear that they will not be adopting,” he said.
Looking forward, Mr Bouris said that he hoped the broking industry would come together now and consult with politicians through one voice.
“We need to be quite active in this as opposed to sitting around waiting for something to happen. But the broking industry should form its own coalition instead of operating in disparate groups and approach the Treasurer and find out what the Treasurer would like the broking industry to do in order to put into place better systems of implementing best interests duty and the other recommendation.
“There are a lot of, already, groups of brokers who have been talking to Treasury, but it would be good if it was just one concerted effort.”
Mr Bouris elaborated: “I think it needs to be a brand new group comprising everyone: the MFAA, FBAA, the CIF guys, but it can’t be too heavily bank weighted either because the banks have their own agenda.
“We need a formal group that acts in the best interests of consumers at the end of the day, not in the best interests of any interest group.
“It has to be a combined group of people putting together whatever legislation is being put into place,” Mr Bouris said.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.