At ASIC’s Annual Forum 2017, several industry heads discussed the idea of whether Australian brokers need to be subject to a ‘best interests’ duty, as agreed by the New Zealand government last year.
The annual event, which took place at the Hilton Sydney on Monday and Tuesday, included a workshop session on mortgage broker remuneration following the release of ASIC's report into the subject.
Cynthia Grisbrook, chairman of the Mortgage & Finance Association of Australia (MFAA), Brett McKeon, managing director of aggregation company Australian Finance Group (AFG), Erin Turner, head of campaigns and policy at consumer advocacy group CHOICE, and Anthony Waldron, executive general manager, broker partnerships, at NAB all sat on the panel for the session, which was moderated by Stephen Sedgwick AO, head of retail banking remuneration review, Australian Bankers’ Association.
Taking a question from the floor, Mr Sedgwick asked the panellists about the nature of the obligation brokers have and the public perception of their job, and whether mortgage brokers needed an equivalent ‘best interests’ duty, such as those imposed on financial advisers following the Future of Financial Advice (FOFA) reforms.
This duty requires advice providers, when providing personal advice to retail clients, to:
- act in the best interests of their clients;
- provide appropriate advice;
- warn the client if advice is based on incomplete or inaccurate information; and
- prioritise the client’s interests
ASIC’s guidance on the matter suggests that, when assessing whether an advice provider has complied with the best interests duty, it would “consider whether a reasonable advice provider would believe that the client is likely to be in a better position if the client follows the advice”.
Answering the question, AFG’s Mr McKeon argued that changing terminology from ensuring that the loan recommended to the consumer is ‘not unsuitable’, to whether it is in the ‘best interests’ would not drastically impact brokers.
He said: “Cynthia [Grisbrook] and I are in agreement here that brokers don’t rest on ASIC's legal definition of 'unsuitable'. Brokers don’t think: 'I’m going to go out and find someone a loan that is not unsuitable', they go out and try to find something that is of value to the client.”
Mr McKeon said that brokers ask the “how and why” questions to ensure that they find the most appropriate loan for the consumer, rather than just finding a loan that the client can qualify for.
He concluded: “We don’t have any issue with a change of terminology. We weren’t the ones that came up with the terminology in the first place.”
Ms Grisbrook agreed, adding: “Brokers don’t go out to do the wrong thing by the consumer. The best interest of the consumer is at the forefront of the mind of every broker I know.”
She continued: “It’s counterproductive to not do so. You can’t grow business if you do the wrong thing. You need that referral, so you need to do the right thing. So, it’s not just about prices, it’s already about what is in the best interest of the client.”
NAB’s executive general manager for broker partnerships said that what was key was that any tests being applied are done so across the board.
He said: “Firstly, we can’t have a different test between brokers and any other way a mortgage is sold. it needs to be across the industry, otherwise you create distortion in the industry.
“The second point is: define best interest and the right product. We talked a lot about that and in many cases it’s not price… in many cases it will be the structure of the loan, whether it will be offset or not, whether they can convert from interest only to P&I and what the terms that that is on, and one of the key things we have to remember is that there are changes in loan products all the time.”
He continued: “The system that we use over at PLAN, Choice and Fast networks has 460-odd products on it and there is constant change on those products. That definition around what could be there is a very difficult one to get right.
“I agree the context for brokers is that they never set out to find something that is unsuitable, but it’s a very hard one to define. It would be great to have a definition that is clearer, but it would be one of things that we need to work through, and if we do work through it, it needs to be right across the industry, not just in one segment, otherwise it creates distortion.”
As well as discussing the potential for best interests duty, the panel also touched on commissions, with Ms Grisbrook highlighting that the ASIC report into remuneration found that trail commissions do not directly lead to poor consumer outcomes, adding that this “indicates that ASIC is not seeing any systemic problems in there”.
She added: “Trail is important and suitable in the ASIC review. It continues customer engagement, it discourages possible churn.”
Touching on incentives, Ms Grisbrook said: “Incentives are important thing to do, it is critical that we incentivise quality brokers so that they remain in the industry and that we actually have a sustainable industry that doesn’t diminish competition.
“To actually eliminate incentives for performance… that is not right.”
NAB’s Mr Waldron added that there have been “numerous models over the years that have waxed and waned through the broker industry”, and that it was in the best interest of brokers that they get involved in the consultation process for the ASIC report.
He concluded: “[N]ow is the time to have those discussions and raising important issues… Let’s actually get out there and have that proper discussion. It will take us time to really absorb [the report]… we need to have talks and really understand.
“Now, the consultation period, is the perfect time to do that.”
NAB, in association with The Adviser, will hold a series of roadshows across the country to inform brokers on ASIC's Review of mortgage broker remuneration, delving into the 243-page report and explaining everything brokers need to know.
Knowledge is Everything - Series 2: ASIC Review of Mortgage Broker Remuneration will be held on the following dates:
Melbourne - 28 March
Brisbane - 30 March
Perth – 4 April
Adelaide – 5 April
Sydney – 6 April
Don’t miss this essential event! Save the date now. More information to be released later this week.