The head of one of Australia’s largest mortgage brokerages believes any scrutiny of the industry should be applauded as it highlights the important role that brokers perform.
When asked to comment on the release of the Sedgwick Review, released this week, Mortgage Choice CEO John Flavell told The Adviser that the group believes the current remuneration structure is fair and reflective of the level of effort and services provided by mortgage brokers.
“That said, any report that seeks to scrutinise the industry should be applauded,” Mr Flavell said. “By putting mortgage broking under the microscope, everyone will be able to see the tremendous job this industry does for consumers each and every day.
“Brokers work hard for their customers and will strive to ensure they are put in the right product for their needs.”
Unlike most brokerages, Mortgage Choice loan writers operate under a unique ‘Paid the Same Policy’. This means Mortgage Choice brokers are paid the same rate of commission regardless of which lender the customer chooses – so long as it is one of the residential lenders on the Mortgage Choice panel.
“With regards to the potential differences between bank-originated loans and broker-originated loans, I must state: as someone who has worked in the banking industry and the broking industry for many years, it is clear that broker originated home loans are of the same quality as bank originated home loans,” Mr Flavell said.
According to industry lawyer Jon Denovan, there is not a great variance in the commissions paid to brokers by the different lenders.
“Even between the prime and the non-prime world,” Mr Denovan told The Adviser.
“They might dress it up differently. Sometimes they might have a slightly higher trail or a slightly lower upfront and vice versa,” he said.
Mr Denovan, who has provided legal services for the mortgage broking industry since its inception, believes that customers often choose the lender they desire, even when visiting a broker.
“A broker will advise and say these three or four loans are good for you, but the customer will then select the name that they know. That’s why you keep finding people like CBA do very well,” he said.
“I’ve got mates who will go to a broker for a CBA loan because the broker will organise it for them because it’s easier, and they might get a slightly better rate”
Lenders that do pay a higher commission are frequently those with lower volumes with no established distribution or widespread public image, Mr Denovan said.
He added that it has also been demonstrated that the commission channel is often cheaper for the lenders to distribute.
The release of the interim Sedgwick Review comes as ASIC prepares its own report into broker remuneration. Mr Denovan said he has been working closely with the MFAA in relation to ASIC’s inquiries.
“They have pulled a mountain of data. If there is mis-selling, that data will disclose it. There is no hint, so far as I’m aware, that the data has disclosed anything other than a competent, efficient marketplace with significant competition,” he said.