The CEO of the Mortgage & Finance Association of Australia has said that ASIC’s remuneration review was a “positive outcome for brokers” but warned that “some change will be necessary”.
Speaking at a breakfast meeting hosted by the industry association in Sydney earlier this week, the CEO of the MFAA, Mike Felton, touched on the remuneration reviews hitting the industry at the moment.
Speaking about the Australian Securities & Investments Commission’s (ASIC) Review of mortgage broker remuneration which has put out by Treasury for public consultation, Mr Felton said he believed that government “took a well-informed approach to both of those processes”.
He told brokers at the Sydney event: “Change is inevitable and it’s the MFAA’s role, as far as possible, to ensure that these change processes and these reviews, are well informed and well considered...
“The MFAA believes the ASIC remuneration review was a positive outcome for brokers, we believe it was a strong affirmation of the value brokers provide in driving competition and great outcomes for consumers.”
The MFAA CEO continued: “The report made six recommendations and these are aimed at strengthening our industry and further improving consumer and market outcomes. We look forward to working with ASIC and Treasury in constructing workable solutions that will be in the interests of all parties. We certainly need to seek to self-regulate and enhance the sustainability of our membership. Whilst going through this process there will be a strong focus on ensuring we are driving competition, which is closely correlated to customer results.”
Specifically, Mr Felton said the association was “really pleased” that the ASIC report recognised that upfront and trail are universal structures, and “while suggesting some improvement of these, some fine tuning of them”, largely left them “intact”.
He added: “The report also acknowledged that volume-based payments and commissions and bonus payments that are volume related do not necessarily cause poor consumer outcomes. But, the report did express some concern that with volume-based incentives (VBIs) there is an elevated potential risk of conflict of interest, which ASIC would like to address. The recommendation has been made that as a general rule the industry should move away from these VBIs and soft dollar incentives.
“The MFAA, in consultation with our members, accepts that some change will be necessary and particularly where consumer choice and competition may be diminished or affected.
“[W]e do need to look at whether soft dollar payments [are] encouraging the promotion of a single lender or product, in which case [they] would need to be reviewed,” he said.
Mr Felton went on to say that while the association “will not support” the practice of lenders passing VBIs directly to brokers, it does support the use of soft dollar to “reward good, productive and strong brokers”.
He commented: “If it is promoting performance across the broad spectrum of an aggregator's lenders and products, then we believe it will be fit for purpose and appropriate and not diminish competition or choice to anyone.”
In conclusion, Mr Felton said: “Overall, this was a well-informed and well-considered process and I believe the outcome reflects that. To be clear, the MFAA certainly supports transparency and more accurate disclosure and better outcomes for consumers because that is where sustainability will come from.”
Briefly touching on the recent Sedgwick Review, which he has formerly commented on, the MFAA CEO said the only comment he would make at the breakfast was that there is already a “robust and well considered process in place with ASIC and federal government, which is based on empirical data and exhaustive consultation with industry”.
He added: “We will be focused on this process and working with ASIC and Treasury to come up with outcomes and solutions for our industry and for consumers and we urge others to do the same, join the ASIC process and see that through to conclusion.
“That coal-face point of view and input into the process is critical to formulate good policy.”
In closing, Mr Felton said: “As a growing industry, we will continue to be facing external industry and we should see that as a sign of our maturity. While external scrutiny is welcomed, I believe true sustainability comes from within as we work collectively to innovate, to self-regulate and to do the right thing.
“This builds trust and confidence and ensures our industry is balanced, fair and equitable and continues to produce good outcomes for consumers.”