As the ACCC consultation on the AFG/Connective merger draws to a close this week, the CEO of AFG has outlined that the group is busy alleviating the regulator's concerns regarding competition and market access.
In February, the competition watchdog raised preliminary concerns about the proposed merger between Connective and AFG relating to the size, reach and power of such a combined entity.
The Australian Competition and Consumer Commission (ACCC) released a statement of issues last month relating to its preliminary concerns that the merger of the two aggregation groups could reduce competition in the supply of mortgage aggregation services to brokers and increase the risk of the merged entity “foreclosing rival lenders” by denying access to its lender panel in order to grow its own white label products.
The ACCC has been asking interested parties to supply further information on these matters – with submissions accepted until this Thursday (5 March), with a final decision expected on 7 May 2020.
Speaking to The Adviser about the concerns raised by the ACCC, AFG CEO David Bailey echoed the comments from Connective executive director Mark Haron, and outlined that the group was in discussions with the competition regulator to assuage their concerns by “educating” them on how the mortgage aggregation model works in practice.
Mr Bailey said: “I’m going to parallel the experience with that of the [banking] royal commission; the broking industry looks quite simple from afar but once you peel back the layers, there are lots of nuances in terms of how brokers interact with their customers, how brokers are recruited by other aggregators, and what brokers are looking for in an aggregator in terms of technology, business development support, recruitment of other brokers etc.
“I think the onus is on us now to educate the ACCC now (as the industry did very well last year during the royal commission and then the election process), to outline that the reality is actually quite diverse in terms of the brokers, the models, and the level of competition in the market.
“That education process will start now. They’ve requested a whole heap of more information and we will provide that information and, over the next couple of weeks, support it with other evidence, which they are looking for.”
As an example, the AFG CEO touched on the concerns raised by the ACCC that a merged AFG/Connective aggregation group could potentially limit the number of lenders on the panel.
“That’s just not reflective of how the industry works,” Mr Bailey told The Adviser.
“Brokers want to be able to provide their customers with choice, and – especially as we move into best interests duty – the level of choice a customer has (in order to ensure they’re getting a loan for their best interests) is really really important.
“So, the thought that we would turn around and take lenders off our panel, or reduce access, isn’t something that would happen in practice; we actually want more lenders on panel.”
Indeed, Mr Bailey revealed that the group is currently in confidential discussions with three new lender partners to join the panel in the next three to six months – adding that the existing panel also already includes “competitors” to the AFG white label products.
He continued: “That’s a good example of what we need to show and to dig deeper into the history of adding lenders onto panel, and outlining that – in the broker community – having a wide panel is actually one of the attributes that brokers look for in an aggregator. So reducing our panel would actually hurt us. That’s the type of deeper dive conversation we need to have,” he said.
Mr Bailey told The Adviser that any merged entity would continue to operate under “two different brands providing two different opportunities for a broker to engage with different revenue models and different pricing models”.
He concluded: “We do think there is an opportunity to streamline some of the back office support services, and share technology and compliance ideas. But, when you’ve just bought a business and the foundation of that business is 4,000 brokers, the last thing you want to do is turn around and disrupt what they’re doing on a day-to-day basis. So we’re very mindful of that.”
Mr Bailey added: “The last thing you want to do is upset the applecart and change things. The aim isn’t to pull the plug on Mercury or FLEX. The technology platform is as intrinsic as the iPhone for most people, in that it's what the broker uses day-to-day. So the last thing you want to do is upset the applecart and change things. The idea is to actually improve their experience with your technology – whether that be FLEX or Mercury. We’re certainly not wedded to any groundswell changes overnight because the last thing I want is a revolving door brokers out because we’ve changed technology.”
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.
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