The FBAA has dismissed the possibility of broker commissions being scrapped as a result of ASIC’s review, but warns that one-off lender incentives could be in the firing line.
FBAA chief executive Peter White told The Adviser he does not anticipate a fee-for-service model will be introduced in the third-party channel because a broker’s job is to provide credit assistance to the borrower on behalf of a lender.
“Today, fee-for-service represents less than 5 per cent of market-style remunerations and is shrinking unless you provide more than just home loans,” Mr White said.
“I don’t see much changing from the way things are with baseline commissions as things are not broken to start with.”
However, Mr White added that certain lender incentives offered to brokers like “hidden bonuses” or “non-cash commissions such as holidays and overseas conferences” might be a cause for concern for ASIC.
“It’s all about disclosure, outcomes and conduct. We must disclose all that is ascertainable and we must only incentivise the right style of conduct. Incentivising just volume is not necessarily the right outcome of conduct,” he said.
“Issues with vertical integration and white-label products where steering has been evidenced in the past, unfair broker contracts which create conflicts and constraints and potential breaches of law, bank branches pinching broker business and moving loans onto their own internal books from the broker’s portfolio resulting in clawbacks all need to be fair and transparent, as there is no other truth and no other way to do business and grow effectively.”
Mr White noted that brokers should not see the regulator’s review as a “witch hunt”, but a necessary process for the industry.
“ASIC is creating a report on how commissions are paid to brokers in the home loan sector only,” he said.
“This report is then given to the minister by the end of December 2016 and then the minister will deliberate its findings, engage further with industry and public consultation, and then any changes need to move through parliamentary process.
“So things will not move quickly, and it may all be a wasted exercise if there is a change of government in July. The Labor Party may simply scrap the review in favour of a royal commission into banks.”