The Assistant Minister for Treasury and Finance has said that broker remuneration will be reviewed in three years’ time but that he does not believe there are “significant problems” with trail at the moment and that a Coalition government would not “try and fix things if they are not broken”.
With less than two weeks left until the federal election on 18 May, the political parties have been busy campaigning to drum up support as the polls show that the election race is practically neck-and-neck.
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 voiced their support of the broking community and 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.
The conference call also gave brokers the opportunity to ask questions of Mr Frydenberg and Mr Seselja, with several brokers asking what the next steps will be around broker remuneration.
‘We don’t want mortgage brokers to be worse off’
Mr Frydenberg was asked about his thoughts on the ramifications of removing trail and how it would impact on the value of a broking business.
In response, the Treasurer said: “The key point here is that we don’t want mortgage brokers to be worse off and by dismantling the trail as we know it, that would lead to changes in outcomes or, indeed, worse outcomes for the mortgage brokers.”
Noting that ASIC did not identify trail commissions as directly leading to poor consumer outcomes, nor did it recommend the removal of the trailing commissions in its 2017 Review of Broker Remuneration, Mr Frydenberg emphasised that the Coalition government is “not proposing to change the trailing commission” but instead review the impact of the best interests duty and the impact of removing trail for new loans in three years’ time (as previously announced).
He added that while this review would look “holistically” at the impact of the best interests duty on “the viability of the mortgage broker’s business”, the party “want[s] to ensure that [brokers] are no worse off”.
Likewise, when Mr Seselja was asked for more details about the review in three years’ time, the assistant minister said that the Coalition government was “conscious of the fact that there has already been a lot of analysis on [trail commission]”, particularly citing the Productivity Commission report, adding “we’re not going to try and fix things if they are not broken”.
Mr Seselja said: “There is no doubt that when we looked at responding to the royal commission, we wanted to do it very cautiously. Obviously, one of the recommendations was around the trail commissions and we initially were going to support that but... we had a lot of consultation with mortgage brokers around the country so there was a judgement after that consultation that what we should do instead is have a review in three years’ time.”
He continued: “[I]t will be done by the Council of Financial Regulators, and that comprises the Reserve Bank of Australia (who chairs it), APRA, ASIC and the Australian Treasury. So that will look at it very carefully, and you will see that there is a lot of expertise [in the council].
“If you look at what the Australian Treasury had to say when it came to the royal commission and made submissions on the issue of mortgage brokers, [it] was very supportive of the industry and a number of the concerns of the industry in that submission.
“So I think – certainly under a Coalition government – what you will get is a very fair review, and we are not going to change things unless there is a serious problem. And the way I see it, personally, I don’t see significant problems with the issue of trail commissions at the moment.
“So that is our policy going forward. We’ve been listening to the industry and we’re not going to try and fix things if they are not broken,” Mr Seselja said.
He concluded: “I think it is worth saying that there has been a lot of good faith from the government in listening to the industry and we’ve shown that over the last few months and, obviously, that would be the approach moving forward if we are re-elected.”
Composition of the Senate
When asked whether the Liberal Party would be able to “push back” legislation on the removal of trail should they lose the election, the assistant minister said it would be “very uncertain”.
“Much better that we win the election, that is the way to stop it,” he said.
“In the event that we did lose, obviously the challenge would be that not just the Labor Party would back it, but I’m sure the Greens would back them [too], so once you combine them in the Senate... there would be a reasonable chance they could [pass it].
“We will fight for good policy and we will fight against bad policy in government or opposition, absolutely. But it is much harder to stop it when you are in opposition, despite your best efforts.... So we’ll do everything we can, but we’ll be much stronger from government,” he said.
In conclusion, Mr Seselja told brokers: “There is no doubt that there is a lot at stake at this election, but the good news is that there is absolutely a fight that can be won.”
He called on brokers to “preach to others” about the impacts of the Labor Party’s proposal to remove trail for new loans from July 2020, stating: “I ask people to: 1) realise the power that they have and 2) realise that if all 1,000 people here were to send out some emails and have some conversations [with clients], that would be potentially very powerful in moving these votes and stopping these policies coming in.”
The session was moderated by the managing director of the Finance Brokers Association of Australia, Peter White, who told The Adviser that he was thankful to the Treasurer and assistant minister for taking the time to host the conference and be “very open and consultative with industry” and supportive of small businesses.
Speaking about the review that is scheduled for 2022-23, Mr White said that he would have “no problem” with it should it just “ensure that everything is in order and everything is OK” and to act as a “check and balance of how the best interests duty goes”.
However, he reiterated his belief that “a review with a direct and deliberate intent to change [commissions], is completely unacceptable”.
Mr White said: “We started back in 2014 with a question mark over broker remuneration under the Financial Systems Inquiry, and if we have a review in three years’ time, it will be more than eight years that we have had this question mark over our heads as to the future of income and revenue in mortgage broking. That is just completely unacceptable in any industry, let alone ours.
“It’s stopping people from investing in the industry and growing their businesses; it’s stopping people from entering the industry because they don’t know what the future is going to look like (because the recommendation for a review is to have a view to move to a consumer-pays fee-for-service model).”
He added: “We will work with government in two weeks’ time in a very, very strong fashion around that.”
The Labor Party has also been meeting and consulting with the broking industry and it is believed that the Labor Party has also been approached to speak to brokers about their stance on broker policy before the federal election.
[Related: Broker policy contest heats up]