The “existing arrangements” for broker remuneration would remain under a Labor government, Stephen Jones MP, the shadow minister for financial services and superannuation, has confirmed.
Speaking at an event hosted by PritchittBland Communications in Sydney on Thursday (27 January), the shadow assistant treasurer and the shadow minister for financial services and superannuation, Stephen Jones MP, confirmed that the Australian Labor Party had no intentions of changing the current broker remuneration structure and that commissioner Kenneth Hayne “probably wasn't right” on his recommendation to move to a consumer-pays model.
The final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that “changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers”.
In its official response to the royal commission in 2019, the Labor Party had originally proposed banning trail commissions paid to mortgage brokers and capping upfront commissions at 1.1 per cent.
However, the shadow assistant treasurer and member for Whitlam has confirmed that the party no longer supports changing broker remuneration.
When asked by The Adviser how the ALP would treat broker remuneration should it win the upcoming federal election, Mr Jones responded: “We think that’s a settled issue; the existing arrangements are a settled issue.
“We think the existing arrangement should stand. We’re not going to change it...
“We think Hayne probably wasn’t right on that. He might have had it theoretically right, but when you look at the operation of the industry, and how it works in Australia and the fact that well over 60 per cent of residential mortgages are now being written through brokers, you’d be doing enormous damage to the settled state of affairs to adopt the Hayne royal commission [recommendation on broker remuneration].”
The comments from the shadow minister for financial services and superannuation are pertinent given the upcoming federal election, which is expected to be held in May.
Neither Labor nor the current Coalition government has voiced intentions to radically change broker remuneration in recent months.
While the Morrison government had initially said in its official response to the final report in 2019 that it would ban trail commission payments for new mortgages from 1 July 2020, the Treasurer later revealed that the role of upfront and trail commissions would instead be reviewed in 2022.
Treasurer Josh Frydenberg recently suggested to Momentum Media that such a review would be held in the “back half” of the year.
Members of industry, including associations, aggregators and individual brokers have been busy engaging with politicians and outlining the impacts that changing broker remuneration would have on industry.
In a recent video update to members, the chief executive of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, said that the association had undertaken a “significant amount of work on the 2022 review” last year, in preparation for the upcoming review, adding that brokers were in “an exceptionally strong position” to face it.
Appetite to move to a consumer-pays model is also low among existing broker clients, with research from the Finance Brokers Association of Australia (FBAA) recently finding that the vast majority of broker clients are not concerned with brokers receiving commissions, and less than a third would pay a fee for service.
The survey echoes similar findings made by Momentum Intelligence in 2019, when the inaugural Consumer Access to Mortgages report found that nearly two-thirds of borrowers (58 per cent) said they would not be willing to pay a broker a fee, while a whopping 96.5 per cent of broker clients said they wouldn’t be willing to pay $2,000 for the service.