The CEO of a mortgage neo-lender met with shadow treasurer Chris Bowen this week, suggesting that Labor is “sticking to their guns” on broker commissions.
Earlier this week, representatives from Australian Mortgage Marketplace (AMM), including CEO and co-founder Graham Andersen, met with the shadow treasurer and member for McMahon in Canberra to discuss the Australian Labor Party’s response to the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
According to Mr Andersen, the meeting was aimed at gaining greater clarity on Labor’s stance.
Speaking to The Adviser, the CEO of AMM elaborated: “We really wanted to get a level of clarity on what their position was because, in the month before [this meeting], things had been moving round with both the Labor Party’s stance (and certainly, the Liberal Party’s stance too).”
For example, the federal opposition had previously expressed “in principle” support for all 76 of commissioner Kenneth Hayne’s recommendations, which would include a ban on a lender-paid commission-based remuneration to brokers. However, in February, the party officially announced its policy response to the broker remuneration recommendations, which showed it was backing away from a consumer-pays model and calling for a lender-paid standardised flat fee.
Instead of recommending that the consumer would pay mortgage brokers a fee, the Labor Party proposed that lenders instead pay brokers a standardised upfront commission as a proportion of the loan amount. It has suggested that commissions should be capped at this fixed percentage.
Its response reads: “We have listened to experts including the Productivity Commission and the governor of the Reserve Bank of Australia, and we recognise that moving to a customer-pays model in mortgage broking poses real risks to competition in the banking sector.”
Mr Andersen told The Adviser: “This meeting was not so much a question of getting the ‘right’ answer, it was about getting the answer to whether they had a policy and whether they were going to stick to it.”
According to AMM, the shadow treasurer is now “adamant that if elected, Labor will stick to its policy on mortgage broker commissions”.
This would mean that, should Labor be elected in May, it would look to cap upfront commissions at 1.1 per cent, limit clawbacks to two years, ban trail commission for new loans as of 1 July 2020, and also introduce a best interests duty for brokers.
The AMM co-founder said “it’s great to have certainty on Labor’s position”.
He added that he believed that the shadow treasurer understood “the issues quite clearly” and had “understood them, made a decision, and has very strong, rational reasons for why they have that policy”.
“It seems that the Labor Party recognises that there is a lot of opportunity, brokers aren’t going away, but see the business model is changing.”
“It’s actually quite refreshing to have certainty rather than being here one day and somewhere else the next,” he added.
Mr Andersen continued: “We’re a small lender, and we need time to plan what the whole commission payment system is. We wanted clarity. And that is what we got.
“They are sticking to their guns on their commissions policy. And whether we like it or not, that is what they are going to stick to. So, at least now we know what we have to plan for.
“We are pretty happy to have that clarity now,” he said.
The CEO of AMM said it was also a promising sign that the party was willing to engage with smaller lenders.
“It is positive that they are engaging with smaller lenders,” he said, “because, not long ago, they wouldn’t have even considered speaking to us, but now they are listening. It’s a positive move.”
“Personally, I think all of the smaller lenders are going to grow enormously,” he added.
“The majors are under a level of pressure already, losing market share. And that market share isn’t necessarily going to spread to the existing incumbents. There is a lot of opportunity for new lenders to be involved and take up that share.
Labor has been bedding down on its stance recently, as it ramps up to the federal election. Last month, the shadow treasurer said that “there was, and is, a strong case for thinking carefully about the royal commission recommendation and ensuring we protect competition in banking.
“That’s exactly what we did,” he told delegates at a recent banking summit.
Mr Bowen said: “We consulted with mortgage brokers, we consulted with banks and financial institutions – particularly the smaller ones.
“We came up with a different way of removing conflicted remuneration for mortgage brokers. We announced that we would have legislated a flat upfront commission rate to avoid mortgage brokers’ advice being conflicted by the rate of the commission offered,” he said.
Mr Bowen concluded: “When we make big calls – and we’ve made quite a few of them – we stick to them, fight for them, and seek to mandate for them, which is what we’ll be doing, presumably, on the 11th of May [for the federal election].”
The Coalition government’s response to broker remuneration differs, in that it has said it would postpone any decision on removing trail until after a review of mortgage broker remuneration has been undertaken in three years’ time.