Ahead of the federal election, the Treasurer and Assistant Minister for Treasury and Finance have reaffirmed the Coalition government’s support of the broking sector, calling on the broking industry to “preach to others” about the impacts of Labor’s policies.
Speaking to approximately 1,000 members of the mortgage broking and real estate industries in a telephone town hall conference on Thursday morning (9 May), Treasurer Josh Frydenberg and Assistant Minister for Treasury and Finance Zed Seselja reiterated the policies that the Coalition government would seek to bring into effect should it be re-elected after the federal election on 18 May.
Mr Frydenberg thanked mortgage brokers for their “absolutely criticial role in the economy” and “for what they do for our community” and emphasised that the Coalition government’s response to the “cathartic” banking royal commission was to adopt all the recommendations in one form or another, but to leave broker remuneration largely alone until a review in three years’ time.
“We will ban campaign and volume-based commissions and payments; we will also additionally limit to two years the period in which commissions can be clawed back from aggregators and brokers and prohibit the cost of clawback from being passed on to consumers,” he said.
“We’ll introduce, as we’ve talked about, a duty of best interests duty, which will legally compel mortgage brokers to act in the best interests of their customers.
“The value of commissions will also be linked to the amount drawn down by the borrower and not the loan amount; however – and this is they key point – the government will not ban upfront and trail commissions and instead review the impact of the best interests duty on the market in three years’ time.”
‘Brokers play an absolutely critical role in our economy’
The Treasurer said that the Coalition government does not want to put mortgage brokers “out of business”, adding: “We have said that we will implement the best interests duty, but with respect to the ban on upfront and trail commissions, as recommended by commissioner Hayne, that we would leave that to a review in a few years’ time.
“The reason is that mortgage brokers play an absolutely critical role in our economy, and they help generate competition in that market, and we don’t want to see mortgage brokers put out of business with, effectively, their business just migrating to the big banks.”
Mr Frydenberg said this position was taken after the government reviewed the royal commission report and after speaking to key stakeholders about “consumer and business access to financial services, the overall stability of the financial system, the impact of competition and, of course, on economic growth”.
“What we don’t want to do is weaken competition and strengthen big banks,” he said, adding that mortgage brokers were “overwhelmingly small businesses” and sole traders.
The Treasurer noted that Labor’s position was “quite different”, as they would “fix a fee for upfront commissions [at 1.1 per cent] and ban trail commissions”.
“We believe this is problematic on a number of levels, particularly because many mortgage brokers will be worse off under Labor than they are today and could be put out of business.
“It will also impact on competition and, ultimately, their customers,” the Treasurer said.
“Today... brokers get paid higher amounts for more complex loans, but under the Labor Party’s model they won’t be remunerated for this, which will exclude certain consumers from using mortgage brokers. And a fixed fee could drive brokers to encourage churn and put them in clear conflict with their best interests duty.”
Mr Frydenberg noted that it was also “not clear as to whether Labor’s policy includes GST or whether it includes the aggregator’s fee”.
“I think the Labor Party [has] created significant doubt in the sector and, obviously, concern – that is the feedback that we are getting,” he said.
Mr Frydenberg also pointed out that the ASIC Remuneration Review in 2017 said “very specifically” that “they did not identify trailing commissions leading to poor consumer outcomes”.
“This was supported by Treasury’s submission to the royal commission, and commissioner Hayne did recognise the significance of banning commissions in his report and flagged that if commission payments were to remain, he would support the recommendation made by the Productivity Commission to prohibit commission clawback from being passed on to borrowers,” he continued.
“So... we have, after careful deliberation and consultation, decided on the path that I’ve just outlined.”
‘Asking the converted to preach to others’
Further, Mr Seselja said that the Coalition government had been in “extensive consultation and town halls” across the country and had been “hearing the message loud and clear”.
This message, the assistant minister said, was that the property industry – whether mortgage brokers or real estate agents – “are very worried about Labor’s plans to whack the industry”, “whack the value of people’s homes” and “hit mortgage brokers”.
He said: “With the abolition of trail commissions that Labor [is] proposing, [it] means that the industry, if there were to be a change of government, would be hit very hard.”
Noting that he had been told that he may be “preaching to the converted”, Mr Seselja said he was now “asking the converted to preach to others” about the implications of the Labor Party’s policies in what will be a “very close election”.
“It’s time to stop being polite,” he said.
“We know the implications of some of these changes and my message is that if you are convinced as I am, and the Treasurer is, and the industry is, that these are shocking policies, well, spread the word over the next eight or nine days in the lead up the election, because this election could come down to a few hundred votes.”
The session was moderated by the managing director of the Finance Brokers Association of Australia, Peter White.