Riddled by inaction, an outgoing CEO and a less than happy member base, the broking industry’s peak body – the MFAA – is in desperate need of a new agenda and direction. The Adviser crystal balls where that next move should be...
The MFAA is no stranger to criticism. The Adviser need only post an MFAA centric article to receive a volley of unhappy feedback from brokers. So it’s no surprise that industry stalwart, director of FrontRunner Consulting Group and The Adviser columnist Doug Mathlin recently said, “Whoever replaces Phil Naylor will need to have thick skin”, first and foremost.
But the MFAA is also seasoned to change. Since its start in 1982, on top of four name changes, the association’s core membership has shifted from lenders to finance advisers to mortgage brokers. And its numbers offer proof these changes have been successful – membership has gone from 2,000 to 10,000 in approximately a decade.
A more seasoned broker will tell you the association was initially set up by non-bank lenders to promote competition against the majors. Later, as bankers took up advising in the 90s, the mortgage broker emerged in Australia for the first time. The association was quick to incorporate this new member into the ranks and today brokers make up around 95 per cent of all membership. The MFAA exists today because it was quick to adapt to this changing industry.
But recently some brokers have argued the MFAA is not keeping up. A straw poll by The Adviser revealed 72 per cent of respondents feel the industry associations have lost their relevance. And 48.3 per cent of respondents in another poll said they are unhappy MFAA members, compared to the 25 per cent who said they are happy.
The broking industry is also evolving rapidly. Just as mortgage and finance advising has begun to consolidate, recent studies have shown the broking industry may be at risk of domination by the banks. A report by the Customer Owned Banking Association showed the majors now account for 26 per cent of finance advising revenue and 13 per cent of mortgage broking. And this is expected to increase.
This has led some brokers to think it’s time for the association to part ways with its lender buddies – or bare more teeth. Others argue the broking industry is falling dangerously behind in terms of technology and education, while new brokers don’t have enough incentive to join.
With MFAA CEO Phil Naylor expected to give up his post by December – if not sooner – The Adviser thought it timely to ask industry members what changes they want from their main association.
Sorry, what do they do again?
A lot of brokers seem unclear on what the role of the MFAA is. Sure, you get a logo on your website and a yearly conference, but aside from that (and the annual fee), how much does it really affect a broker’s day-to-day business?
Rising Brisbane broker Matt Cunliffe of Mortgage Choice tells The Adviser the association doesn’t seem to affect his life at all. “I’ve never had any traction with the MFAA, which is a good thing, I suppose. But then, it does sort of highlight, is it really beneficial to brokers at all?” he says.
The MFAA states on its website that its objectives are to support brokers, offer skill enhancement, promote client awareness, act as a lobbyist and facilitate stakeholder engagement. But these terms are a bit vague. And ‘supporting’ brokers is a term that seems to have been interpreted differently depending on whom you speak to. One thing is clear: it is this objective brokers most often point to when they say the association isn’t doing a good enough job.
Brokers versus the banks
One of the biggest complaints by brokers is the MFAA doesn’t stand up for them enough against the banks. In 2009, when the Commonwealth Bank decided to cut down on commissions, many brokers looked to the MFAA for rallying support. That didn’t happen.
Regional broker Brian Taylor from Geraldton in Western Australia says it’s this kind of passiveness that has left the banks with too much control. “We should be telling the banks what we need to get in commission, not the other way round. We should set the standard,” Mr Taylor argues. He says by allowing the banks to set different commissions, it has left too much room for conflict of interest. And he also adds it places the broker in a riskier position since they can be investigated if they choose lenders with higher payouts. And in such cases, he says, the lenders aren’t held to account.
These inconsistencies have led some brokers to argue organisations like ASIC are biased in favour of the lenders. A recent straw poll conducted by The Adviser revealed 73 per cent of respondents believe this to be the case.
Brokers argue the MFAA should be showing more spine against lender demands, while others say the banks hold too much sway over the association. Mr Taylor highlights this as one of the main reasons he chose to leave the MFAA.
“When you’re receiving a drop from the banks in the way of financial support it’s very difficult to go to them and say you don’t like what they’re doing,” he says. “There should be no involvement with any of the banks at all.”
Others, like Mr Mathlin, argue that for the association to be beneficial to the industry it needs to involve all parties, including the lenders. He says the association rightly offers a place for brokers, aggregators and lenders to discuss industry issues. We’re essentially left with two arguments: do we have an association for the betterment of the industry, or one for the broker alone?
More legal support
There are arguably more reasons for a broker to get into trouble than the lenders and the clients combined. Frank Chillura of Clearlight Financial Solutions says the best support the MFAA could provide is more legal provision. He argues the rules around broking are too “grey”, and this has left brokers vulnerable.
Although there is information on the website, Mr Chillura says it is only offered as “general guidance”. “These are compliance and legal people, yet we can’t rely on them as fact. And we can’t go to a lawyer every time we have a question,” says Mr Chillura. “The problem is that when it gets too legal they wash their hands of it and say it’s a matter for the broker to take care of. But that’s where they could provide us with a lot more support and information.”
He cites the signing of mortgage documents as an example. If a client is able to dispute the fact they didn’t understand what they were signing, a broker who is acting as a witness can be held accountable. Mr Chillura says the rules also change depending on the lender and the different circumstances. “The lenders tell you they look at it from a case-by-case scenario,” he says. He argues the MFAA should push for clearer guidelines for the whole industry. “The association should have solicitors who specialise in that area,” he says.
Accreditation to have a meaning
The MFAA argues it is a stickler for pushing higher industry standards. When the association brought in education requirements, there were a lot of mixed reactions, including some not so happy ones – around 1,000 brokers were booted out last year after not meeting the standards. But Mr Mathlin says if the association wants to be useful to brokers, it needs to have more power to uphold these standards.
“If you’re going to have an industry association, it’s got to have some teeth. All they can do to penalise someone now is to expel them from their membership,” he says.
Mr Mathlin says that since aggregators and lenders don’t always require people to be members of the association, it’s a big “so what” if they’re booted out.
The lack of brand recognition is also cited as a reason the MFAA has less impact. Since reportedly only 15 per cent of customers are aware of the MFAA, brokers have little incentive to add the accreditation. Mr Taylor says greater public awareness, not just for the association, but for the broking industry, is something the MFAA should be fiercely pushing.
“The MFAA should be saying to the public, ‘Come to us and we’ll give you the best service possible’, not the banks. That’s what we’re not pushing as an industry,” he says.
A shift of power from the aggregators
Mr Mathlin suggests the MFAA takes some of the pressure off the aggregators by acting as a central accreditor. He says the lenders and the aggregators would then be held to account on decisions made to members. This means members could not have their accreditation cancelled without proper explanation.
“If there was a central point like the MFAA to hold the accreditation between the members and the lenders, then the aggregators would have more time to add value to the broker business, and they would also be held to account to provide better service,” Mr Mathlin says.
Mr Mathlin argues that at present aggregators hold too much power. Having the MFAA take charge of accreditation, he says, would create a fairer playing field for all brokers.
“If it sharpened up that space, the MFAA could step in as a group and help to reduce disciplinary issues such as fraud, money laundering and compliance; which is what you want an industry association to do,” says Mr Mathlin. “But it’s tricky for it to do that when the aggregators have all these connections to the lenders that allow them to do whatever they want to do.”
Mr Taylor takes the idea one step further. He suggests the role of the aggregator be replaced entirely by a main broker association. He argues that if all of the associations were to combine, they could then form a single more powerful group, which could then act as the broker-lender go between
“I don’t believe we need the aggregators. We need a frontline company that represents us all, that can submit the applications to the banks on our behalf,” he says. Mr Taylor says aggregator commissions would then be going to an organisation that had the broker’s interests at heart: “I know it’s radical and thinking outside the box, but that’s what we need.”
Focus on tech and social media
There’s been talk for some time now about brokers becoming more ‘tech savvy’.
My Mortgage Freedom’s Anthony Alabakov says it’s an area he would like to see more focus on from the MFAA. “Social media is such a big thing these days,” says Mr Alabakov. “I think they need to embrace that and I think they need to really take that to the next level.”
Mr Alabakov says financial services is often the last to embrace changes in technology. “If you look at other industries such as retail, they have online shopping, tech platforms, iPhone applications. We’re a bit behind the eight ball on that,” he says.
And so, the future
Brokers have said they want the MFAA to take a fresh approach. Younger brokers don’t understand what the MFAA does, while many of the more seasoned brokers say they feel the MFAA is not delivering on its promises.
Mr Naylor tells The Adviser strategies for the next 12 months will include expanding its digital capabilities, a greater focus on young people entering the industry, and a stronger public awareness campaign. However, he says the association’s primary objectives will remain at the forefront; that is to increase professional standards and lobby for the industry.
And as primary goals, it could be argued the MFAA has done reasonably well. The association is well recognised by the government and the ACCC has said it considers the goals of the MFAA to be aligned with the public interest.
But brokers say they want an association that upholds their rights; not just in the public sphere but against major businesses like the banks. However, Mr Naylor has made one thing clear: the association works to improve the industry; it is not a union for brokers.
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