The industry needs to address potential conflicts associated with current clawback mechanisms in the third-party space, an AFG executive has told policymakers.
Appearing before the House of Representatives standing committee on economics, Australian Finance Group (AFG) CEO David Bailey and general manager, industry and partnership development, Mark Hewitt were asked to identify potential conflicts in the broker remuneration model, which could jeopardise a broker’s responsibility to act in the best interests of their clients.
In response, the AFG executives noted that the industry, through the Combined Industry Forum (CIF), had largely addressed perceived conflicts by banning campaign-based incentives and limiting the payment of commissions to the loan amount drawn down by a borrower, net of offset.
However, Mr Hewitt flagged potential risks associated with current clawback arrangements, which he said may reduce, disincentivise or impede borrower switching.
“I think the aspect that creates conflict would be the clawback mechanism,” he said.
“Currently, we have quite a blunt clawback mechanism where typically, a broker would be clawed back 100 per cent in the first year, and then 50 per cent thereafter up to year two, if the loan is refinanced or moved.
“That potentially creates a conflict when a customer might be looking at alternate products.”
He added: “Clearly the broker has to act in the customers’ best interests, but there is the potential for conflict there because they may lose out if that loan is refinanced.”
Mr Hewitt, who also serves as co-chair of the CIF, went on to add that such conflicts would “need to be addressed as an industry”.
The broking industry has been united in its push for clawback reform, with several stakeholders, including the Mortgage & Finance Association of Australia (MFAA), the Finance Brokers Association of Australia (FBAA) and a number of aggregators backing changes to the current model.
In its submissions to Treasury following the release of the federal government’s draft best interests duty bill, the MFAA recommended that the maximum clawback period be reduced to 12 months, and that the clawback percentage “steps down in a more linear manner”, from 100 to zero per cent over the clawback period rather than the current “all or nothing” approach, which it said is “inequitable”.
The FBAA echoed this sentiment in its submission, stating that while its first preference is for “clawbacks to be abolished”, it would back a move to reduce the clawback period to 12 months.
AFG bolsters broker support team
As well as facing the hearing, the aggregation group has also recently announced the appointment of Haley Bellamy to its partnership manager team in NSW.
Ms Bellamy joins AFG from the Institute of Strategic Management, where she has served as business development manager since August 2019.
The new appointee is an experienced mortgage broker, serving for over 12 years at Smartmove Professional Mortgage Advisors.
Commenting on her appointment, AFG’s head of sales and distribution, Chris Slater, said: “Haley is extremely talented and brings a wealth of leadership, broker and support team development and lending experience to the team and is well known and highly respected by our lenders and industry partners.”
Ms Bellamy added: “It’s exciting being able to give back to the industry that has given me so much. I look forward to supporting my brokers to deliver exceptional outcomes for their clients through AFG’s industry-leading technology, tailored business coaching, training, marketing, events and support.
“The leadership team at AFG and my colleagues are world-class, and I am proud to be part of an organisation that is so focused on delivering to its members through innovation and empowerment.
“To join the team in what has been such a challenging time for our members and their clients has only highlighted AFG’s agility and commitment to support its members, doing whatever it takes at every turn.”
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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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