The head of a major brokerage is “encouraged” by the revisions made in the Productivity Commission’s final report on competition in the financial system.
Speaking to The Adviser following the release of Mortgage Choice’s full-year 2018 financial results (FY18), CEO Susan Mitchell noted the “very important” revisions made by the Productivity Commission (PC) in its final report, particularly those concerning broker remuneration.
“I know this is going to sound funny, but I was actually encouraged by their final report. They made a lot of changes from their draft report,” Ms Mitchell said.
“First of all, they moved away from a consumer paying a fee for service, which I think is very important. They had an entire chapter on the broker industry and emphasised the importance that the broking industry has had on competition in the financial services industry.
“They also talk about the fact that if you were to remove trail, you would need to include the upfront commission paid to the broker.”
When asked about the PC’s recommendation to extend provisions under the Australian Financial Services Licence (AFSL) to include credit advice, Ms Mitchell said: “I think it’s going to be a lot to ask a single person to be an expert on planning rules as well as all the credit policies. I think that would be very difficult.”
The CEO pointed to Mortgage Choice’s business model, noting that brokers and planners work alongside each other to deliver “great customer service”.
“I actually think that our network is very well set up for financial planners to be able to integrate mortgage credit advice,” Ms Mitchell continued.
“We have professional brokers and professional planners that work alongside each other.
“Therefore, a [model that allows] a financial planner and a broker [to] work together in a single business, I think, will offer a great customer service,” she said.
Broker settlements fall by 7 per cent
Ms Mitchell’s comments came as the brokerage released its FY18 results, which showed a 7 per cent fall in broker settlements. This equated to settlements being down by $800 million, from $12.3 billion in FY17 to $11.5 billion in FY18.
Ms Mitchell attributed the decline in settlements to “flat” market conditions and the group’s failure to grow its franchise network.
However, Ms Mitchell told The Adviser that the implementation of Mortgage Choice’s new franchise remuneration model would drive investment and improve broker settlements in FY19.
“We were a little bit on hold here for the last six months, so we went about our new broker remuneration model. Our group will be refocused in the future as we have now completed the roll-out of that model — 80 per cent of the brokers have opted in,” the CEO said.
“They are expected to invest the extra remuneration that they’re receiving in more loan writers and administrative support. Therefore, that would increase the number of settlements from our existing franchise network.
“We’re also expecting to increase our recruitment, which would also grow our settlements.”
As at 30 June, Mortgage Choice’s loan book totals $54.6 billion, up by 2.3 per cent from FY17.
Further, Mortgage Choice’s statutory net profit after tax (NPAT) dropped by 80.9 per cent, from $22.2 million in FY17 to $4.2 million in FY18*.
The brokerage partly attributed the fall to a $7.1 million “positive adjustment” for “changes in run-off and other adjustments”, and non-cash adjustment of $28.5 million due to the introduction of the group’s new broker remuneration model.
Mortgage Choice also noted that it expects its FY19 cash NPAT to be approximately $16.5 million.
*This story was updated on 22nd August to reflect that the company's NPAT was $4.2 million, not $4.2 billion, as originally stated.