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Treasurer reiterates support of brokers

by Annie Kane7 minute read
Josh Frydenberg

Treasurer Josh Frydenberg has said that the Liberal Party “[stands] on the side of mortgage brokers” and revealed his thoughts on a best interests duty and whether the removal of trail would result in churn.

In an interview with Sky News reporter Tom Connell on Friday (22 February), federal Treasurer Josh Frydenberg was asked about the recommendations from the banking royal commission and his stance on mortgage brokers.

Reiterating that “you’ve got to be really cautious” about Commissioner Hayne’s recommendation to move to a consumer-paid fee model (which both the Liberal and Labor parties have said will be subject to a feasibility review in two to three years’ time), the Treasurer noted that the Productivity Commission had previously warned that “if you changed that fee model, then the impact on competition could be detrimental, that the big banks could benefit at the expense of the smaller lenders”.

Mr Frydenberg added: “Now, mortgage brokers employ around 26,000 people in the community. Seventy-five per cent of them are sole traders, so they’re small businesses and they write over 50 per cent of the mortgages in the residential housing market.


“Now, Clare O’Neil said on ABC Radio that when it comes to the commissions for mortgage brokers, they should all go. We have never said such a thing. Chris Bowen said they would implement the recommendations. Again, we were very cautious with respect to that. And the Reserve Bank came in behind us and said that our caution was right. We will do a review in three years’ time. We stand on the side of mortgage brokers, the Labor Party can’t be trusted.”

When asked whether there is going to be no change to the upfront commission structure, the Treasurer side-stepped the question, stating: “Well, what we’ve said on best interest duty, let’s put that in in accordance with Hayne, let’s get rid of the volume-based bonuses and we’ve also got a phaseout period for the trailing commissions, for new ones.

“But, when it comes to the customer paying a fee instead of the bank paying the mortgage broker, we’ve exhibited a great deal of caution and we’ve been backed in by the Reserve Bank of Australia.”

He continued: “We’ve got a review in three years’ time [on a consumer-pays model], but we’ve said let’s not jump to implement that particular recommendation because of what the Productivity Commission and others have said about that particular policy.”

On churn and the best interests duty

Mr Connell then asked the Treasurer whether the abolition of trail for new loans would “incentivise churning” given that brokers would “get 100 per cent of their income from commissions, each time they write a loan”.

The Sky News reporter said: “It’s in the mortgage brokers’ interest to keep getting someone on a new loan. They get money every single time and nothing in the interim.”

In response, the Treasurer said, “Actually, I think that the mortgage brokers do a very good job of ensuring the best interest of the customer and that’s where the best interest duty that Hayne actually recommended, will also play a role.”

Mr Connell pushed the Treasurer on whether a best interest duty could see brokers “churning [clients] around” should they be able to get someone “a fractionally better deal”, arguing that this could be perceived to be in the “best interest” of the client.

Mr Frydenberg appeared to allude to the work of the Combined Industry Forum’s work in developing a “customer first duty for brokers, responding: “Well, no. A best interest duty is ensuring that the consumer’s interests come first…

“I think this will be dealt with within the industry.”

The Treasurer and Member for Kooyong, Victoria, was also asked whether brokers were incentivised to write bigger loans given that upfront commissions are based on a proportion of the loan amount, to which he outlined that he thought the best interest duty would “also play a role here”.

“What you want is the mortgage broker...  to get a deal that is the interests of the consumers and, speaking to consumers and speaking to mortgage brokers, I think that relationship is one of respect, has worked well…

“I think that what is going to happen here is that the consumers will be well served by the mortgage brokers, but the big banks won't get actually the additional work that they would have if the Hayne royal commission was implemented as was.

When the Sky News reporter stated that “one of the issues at the moment with mortgage brokers is they tend to write bigger loans”, the Treasurer defended brokers stating: “I don’t know if… you’re being accurate there. There are maybe some instances where some of the bigger loans may be done, and the mortgage brokers do get the financial benefit of those bigger loans. But that also provides the flexibility to the consumer because they can draw down on higher amounts as well.

“So, I think you’ve got to understand there’s a two-way relationship here between the mortgage broker and actually the customer. The market has worked effectively well; these people are well respected in our community,” he said.

Mr Frydenberg also called out the Labor Party for its “humiliating backflip over mortgage brokers” that he said came from “parliamentary pressure and pressure from the industry” and had resulted on “egg on their face”.

The Treasurer said: “We’ve exhibited a great deal of caution. We’ve followed what the Productivity Commission has also recommended here. We’ve been backed by the Reserve Bank of Australia. But the real story today is that the Labor Party and Chris Bowen and Claire O’Neil have been forced into a humiliating back-down, and they’ve been rolled by their caucus, rolled by their Cabinet, and rolled by their leader.”

[Related: Prime Minister backs broker channel]

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Annie Kane

Annie Kane


Annie Kane is the editor of The Adviser and Mortgage Business.


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