Australia’s two national mortgage broking associations have expressed their concerns around some of the Sedgwick Review’s recommendations to alter broker remuneration.
The final report of the review, released yesterday (19 April), was financed by the Australian Bankers' Association (ABA) and conducted by Stephen Sedgwick AO, it made 21 recommendations to the banks around remuneration – three of which involved the third party channel.
While the Mortgage & Finance Association of Australia (
MFAA) was pleased that the Sedgwick review found no evidence of systemic harm, the observations and recommendations made around the broker channel did not present realistic solutions, CEO
Mike Felton said.
“This is a review commissioned by the banks that aims to deal with the banks’ reputational problems, but as far as the broker channel is concerned does not create better consumer outcomes.”
Peter White, director of the Finance Brokers Association of Australia (
FBAA), said the extraordinary thing was that despite the review admitting there was nothing systemically wrong, it still made three recommendations to change broker remuneration structures.
“Why are they trying to pull things apart? You only pull things apart and restructure them if there’s something systemically wrong,” he told
Australian Broker.
In the end, the review was one person’s view of the world paid for by the banks without actually being a regulatory paper, he said.
A lack of consultation
Felton expressed frustration that the review claimed to be focused on a customer-centric viewpoint while ignoring that this was a key aspect of how brokers and aggregators functioned.
“The review’s recommendations on the third-party channel appear to be based mostly on anecdotal evidence from its members. It is unfortunate that the review process did not include meaningful consultation with the broader industry in developing this report,” Felton said.
White echoed similar sentiments, saying that the FBAA had not been approached by the Sedgwick review either.
“You’ve got to wonder behind the scenes, what are the real drivers? And I question what those drivers are. Part of our regulatory experience is all about truth through transparency. I think we’ll never see the true transparency that sits behind this report.”
Unreasonable requests?
The MFAA was also concerned that recommendations in the ABA review also went beyond those in the Australian Securities & Investment Commission’s (ASIC’s) report into mortgage broker remuneration, Felton said.
He highlighted the proposal to adjust or remove current broker incentives and potentially introduce a lender fee-for-service approach.
“The ASIC Report does not recommend removing the link between loan size and commission, nor a fee-for-service model nor removal of trail commission – with good reason. A single, lender-funded, fee for service is likely to lead to a degree of standardisation of all fees, which ASIC is not calling for. It may also be considered anti-competitive by the ACCC, and therefore would not be able to be implemented.”
As for the suggestion to align broker payment structures with those of bank staff, this was not going to happen unless the banks started paying the brokers a very strong, competitive salary and remove clawbacks, White said.
These review’s recommendations were “very misguided” since broker commission structures on a global scale create excellent outcomes if structured in the right manner, such as in Australia, he continued.
Furthermore, claims that linked the difficulty in writing a loan to the characteristics of the borrower instead of the loan size were simply incorrect, he said.
“Anyone who’s actually written credit in their lives knows that this is actually not the case. This shows that this person hasn’t done any lending or if they have they really don’t understand what they’ve been doing.”
Related stories:
Sedgwick shoots down commissions linked to loan size
Final Sedgwick report released
Aggregator slams ABA Review's "ludicrous" broker findings
