Remuneration of mortgage brokers has been cast in the spotlight again, after the Turnbull government promised it will address “misalignment of incentives” in mortgage broking in its response the Murray Financial System Inquiry.
In the Treasury’s response released this week, the government said it plans to address misaligned remuneration incentives by “reducing and improving the disclosure of conflicted remuneration in life insurance, stockbroking and mortgage broking.”
More specifically, the government said it will task ASIC with reviewing remuneration structures in the mortgage broking industry by the end of 2016.
Speaking to
Australian Broker, Siobhan Hayden, chief executive of the
MFAA, said she welcomes this review as an opportunity for the industry.
“To be honest with you, I welcome the opportunity to work closer with ASIC to inform them about how remuneration works and how it doesn’t negatively impact the choices our brokers make for consumers,” she said.
“I am not concerned and brokers should not be concerned, I think it is a point of education.”
Peter White, the chief executive of the
FBAA agrees, adding that the review is unlikely to change anything anyway.
“I don’t think the outcome is going to change anything because of competition and transparency in the marketplace. When we have got this style of competition in the marketplace it is unusual to get an imbalance in commission structures – and they are all pretty transparent under the NCCP,” he told
Australian Broker.
“Where the market evolves to in the coming five to ten years and whether or not fee-for-service becomes more prevalent in the marketplace, that is a whole different discussion. However, from a regulator actually looking to review something, and reviewing commissions, I would expect that to be a normal course of action anyhow. That is just a part of what the regulator does and any regulator does for any industry. It is a matter of process.”
But while the broking industry may be welcoming the review as a chance to educate ASIC and consumers about commission based remuneration, some are saying it could mean a crackdown on commissions.
Consumer advocacy group Choice says the review will be a chance to take action on banning commissions.
“The response also recognises that we need to go further in banning commissions that stop consumers getting quality advice across the financial system. We were pleased to see the government commit to crack down on commissions in life insurance advice and promise an ASIC investigation into mortgage broker remuneration,” Choice CEO, Alan Kirkland said in his response to the government’s response.
However, White told
Australian Broker that Choice’s view on banning commissions is “crazy”.
“As far as Choice saying it should be banned, that is just crazy. There is no justification for banning it. The NCCP has created a completely different level of transparency – people are aware upfront in the credit guide what the commission arrangements are and the fact it doesn’t impact interest rates, so it is not costing the borrower any more money.
“If [the bank] doesn’t pay a broker, at the end of the day [the cost of commissions] is embedded in running a branch network. It goes one way or the other.”
Hayden said Kirkland’s comments demonstrate another opportunity for further education on the mortgage broking industry.
“I think the Choice business is not well-informed in relation to our sector and I welcome the opportunity to further explain, like with ASIC and the government, to Choice’s CEO how we are remunerated and the decision points that finance brokers apply when they are dealing with customers and how that works,” she told
Australian Broker.
