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Clawback system ‘needs to change’

by Hannah Dowling5 minute read

The clawback system, as solidified in new legislation, is “completely unfair” on brokers says Sydney-based broker and Zippy Financial director Louisa Sanghera.

In light of the Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers [2019 Measures]) Bill 2019 being passed in both houses of Parliament earlier this month, Zippy Financial director Louisa Sanghera spoke out against the setting of a two-year commission clawback period within the legislation.

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Ms Sanghera stated that under the new legislation, brokers may be “left out of pocket” should a client choose to change lenders within the first two years of their loan term. 

“[Brokers] have no control over what clients decide to do once the transaction is completed, yet, we end up essentially working for free if they change lenders or repay their loans within the first year or two,” Ms Sanghera said.


“In what other industry is it alright to essentially not get paid for work that you have successfully completed because of something that is completely out of your control?

“The whole system is wrong and needs to change.”

Ms Sanghera stressed that neither the broker nor the customer should be penalised for changing the terms of the loan, or switching lenders, in the first two years of taking out a new loan.

“Most clients stay with their lender for the long-term, but if they decide to refinance or perhaps repay the mortgage because of an inheritance quickly that is their absolute right to do so,” she said.

“Why should brokers, which are generally small businesses, be financially penalised for decisions that we have no control over and why does the government seem to think this is appropriate?"

Ms Sanghera also stated that the clawback claims process is flawed, as it does not allow for brokers to dispute the decision.

“[T]he system is not transparent as lenders simply notify us of clawbacks but aren’t required to provide evidence,” she said.

“I just can’t understand why the industry allows all brokers to have to pay back the money they have earned if the client does the wrong thing by the broker and, ultimately, the lender?”

Ms Sanghera stated that the harm of clawbacks on brokers, many of whom operate their own small businesses, is significant.

The threat of clawbacks causes cash flow uncertainty for smaller brokerages and sole traders, and the only beneficiary of the system appears to be the big banks, according to the Zippy Financial director.

“Clawbacks were introduced prior to the royal commission and have always been bad policy in my opinion,” Ms Sanghera said.

“Now it is set to become law with the only beneficiaries being big banks.”

She concluded: “Brokers are generally small businesses and it is completely unfair that we are seemingly expected to work for free.”

[Related: Best Interests Duty Bill formally passed]

Clawback system ‘needs to change’
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Hannah Dowling

Hannah Dowling


Hannah Dowling is a journalist for The Adviser and Mortgage Business.


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