Prime Minister Scott Morrison has doubled down on his support for the “status quo” in the broker remuneration model, as the industry urges Labor to follow suit.
Earlier this week, Treasurer Josh Frydenberg announced that the federal government would not proceed with its initial plan to ban the payment of trailing commissions to mortgage brokers from 1 July 2020 in response to recommendations outlined in the banking royal commission’s final report.
The government’s decision was met with widespread support from the third-party mortgage industry, which has highlighted the importance of trailing commissions as a means to protecting the viability of brokers and competition in the marketplace.
Speaking to the media on Thursday (14 March), Prime Minister Morrison defended the Coalition’s policy revision amid scrutiny from the Labor Opposition, which has described the government’s policy revision as “humiliating”.
Reacting to the government’s announcement, shadow treasurer Chris Bowen said: “Thirty-six days, that’s how long it took the Morrison government to back-flip on an important royal commission recommendation.
“Thirty-six days ago, [Treasurer] Josh Frydenberg told us the Morrison government would abolish trailing commissions for mortgage brokers.
“In a humiliating change of position, the government simply kicked it into the long grass as being all too hard for them.”
He continued: “[No] longer can the government say they’re taking action on all the recommendations of the royal commission because, on the issue of mortgage brokers, they are simply not.”
“Now Josh Frydenberg has to explain, what has changed in those 36 days. What’s different? What led the government to change its mind?
“The Productivity Commission recommended abolishing trail commissions, the royal commission into financial services and banking recommended abolishing trail commissions, but Josh Frydenberg knows better?”
Mr Bowen went on to claim that the Labor Party’s proposal to ban trail and cap upfront commissions at 1.1 per cent would provide the industry with greater stability.
“[The] Treasurer and the government have created considerable uncertainty for the sector by saying I’ll do nothing but have a review in three years’ time,” the shadow treasurer said.
“That means that the mortgage broking business model is in limbo for the next three years.
“Anybody who goes to sell their business, for example, will have to say to the potential buyers, ‘The whole thing may change in three years’ time [and] we don’t know what it might change to’.
“Not every mortgage broker will agree with the Labor Party’s policy, but it’s clear, it’s laid out, it’s there for all to see and it provides certainty for the sector.”
However, when questioned about the government’s decision, Prime Minister Morrison reaffirmed the government’s position, noting that the retention of trail commission is “basic fairness”.
“Our concern was, after having responded to the royal commission, having sat down with the industry to work through implementation issues on talking action on the royal commission, that the best thing for us to do was not to leave customers exposed by ensuring that mortgage brokers were weaker,” he said.
“There’s some 25,000 people who work in mortgage broking businesses around the country and many of them are just sole operator businesses, many of them are female sole operator businesses.
“We want to see the mortgage broking industry continue to thrive, so under our plan, they’ll have the status quo when it comes to commissions [so] they can continue to run their businesses.”
The Prime Minister added: “Labor wants to pull the rug out from under them, so I think mortgage brokers and those who rely on them can have a very clear choice; we’re backing the mortgage brokers, Labor is backing the big banks.”
Labor urged by industry to follow suit
Speaking to The Adviser following the federal government’s announcement, Sam White, executive chairman of broking franchise Loan Market Group, welcomed the move, stating that “common sense has prevailed”.
“This news is a terrific outcome for customers and the long-term sustainability of the broker industry,” he said. “We have never seen any evidence of why trail commission should be banned.”
Mr White continued: “The current model has played a significant role in opening up the mortgage market to non-bank lenders, regional banks and people-owned banks, plus resulted in a growing and happy customer base, now with almost 60 per cent market share.”
Reflecting on his meeting with Prime Minister Morrison, Mr White added: “When I spoke to the Prime Minister in Perth, [it] was clear that the Liberal Party had been listening to its local MPs.
“Scott Morrison was keen to ensure that the broking industry remains viable and that it could continue to deliver great outcomes and competition in the Australian banking industry.
“I’m confident that the announcement by Federal Treasurer Josh Frydenberg does exactly that, protects competition and the sustainability of this industry.”
He added: “Given that mortgage brokers are such an integral part of the Australian financial ecosystem, it makes sense to review this position in three years’ time, and as such, I welcome their position to do this.”
The aggregator head called on brokers to continue lobbying Labor Party MPs to help facilitate bipartisan support for the retention of the current remuneration model.
“Our job is not over. This news has showed that the tireless advocating our industry has been doing is working and politicians are listening,” he said.
“We must continue to do three things: continue to offer your customers exceptional service, continue to speak to your local MPs, particularly Labor members about the competition and value mortgage brokers add, and continue to collect your customer stories and share on social media using #brokersworkforyou.”
Also speaking to The Adviser, John Kolenda, managing director of mortgage aggregator Finsure Group, echoed Mr White’s sentiment.
“Finsure Group is pleased by the federal government’s decision regarding trail commissions for mortgage brokers because it will provide the best outcome for consumers by keeping alive competition in the home finance sector,” he said.
“We appreciate that in their response to the Hayne royal commission recommendations, the Coalition government has taken the opportunity to thoroughly examine the dynamics of our industry and the role brokers, aggregators, small lenders and non-bank lenders play in creating a highly competitive environment benefitting consumers.
“They have no doubt spoken at length to industry participants to fully understand the market and its current structures.”
Mr Kolenda also urged the ALP to adopt the Coalition’s policy approach.
“We hope the Labor Opposition also does its due diligence and comes to the same conclusion to retain the current structure, which is clearly best for consumer outcomes,” Mr Kolenda concluded.
[Related: Banks respond to revocation of trail ban]