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Association defends commercial brokers amid remuneration probe

by James Mitchell5 minute read

The peak industry body for commercial brokers has outlined the differences between commercial and residential mortgage brokers in a submission to the ABA’s retail remuneration review.

Responding to Stephen Sedgwick’s initial Issues Paper, which was released on 17 January, the Commercial Asset Finance Brokers Association (CAFBA) explained why commercial equipment finance broker commissions are not incentive-based and do not result in poor customer outcomes.

While Sedgwick’s final report, released last week, made a number of recommendations to change the way mortgage brokers are remunerated, little was said about commercial brokers.

“These brokers act as intermediaries between banks and commercial borrowers and, in general, provide equipment finance to them,” Mr Sedgwick said.

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“Commercial equipment finance sits outside the National Consumer Credit Protection (NCCP) regime as it is commercial in nature and is not credit provided for personal domestic purposes. This type of finance is outside the scope of the Terms of Reference of this Review as it is commercial in nature,” he said.

“In case of any doubt about their applicability, however, my recommendations should not be construed as applying to these types of arrangements.”

These statements will no doubt be welcomed by CAFBA, which made clear the distinction between commercial and residential mortgage brokers in its submission, published earlier in the year.

“Much of the concern in the Review in the mortgage third-party channel space is that brokers sell a range of products from numerous banks with whom they have a relationship. The concern that where a mortgage broker can earn a significantly higher commission to sell one product over another, they are incentivised to sell that product, which may not be suitable to the customer, potentially leading to poor customer outcomes,” CAFBA said. “The role of the commercial equipment finance broker is vastly different to this scenario.”

CAFBA explained that commercial equipment finance brokers are dealing with business customers, predominantly SMEs, who wish to acquire equipment to be used in their business to earn assessable income.

“The products available for the customer are predominantly driven by tax reasons, and the client’s current tax structure. Therefore, the required product is often advised by the client’s accountant,” the association said.

CAFBA went on to list the main products available to the equipment finance broker such as a chattel mortgage, commercial hire purchase, finance lease, operating lease and novated lease.

“The commission earned by the broker is generally the same under each product. There is no financial incentive to the broker to sell one product over another,” the association said.

“It is our view there is no evidence of poor customer outcomes from the services of commercial equipment finance brokers, who provide a conduit for small business to access finance to assist business growth.”

[Related: CAFBA awards female leadership scholarships]

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James Mitchell

James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

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