All four majors to implement recommendations of the Sedgwick Review, including extensive changes to broker remuneration
All four majors to implement recommendations of the Sedgwick Review, including extensive changes to broker remuneration
Several major and non-major banks will end the paying to brokers of commissions directly linked to loan size.
The move followed yesterday’s publication of the Sedgwick Review – separate to ASIC’s recent review - which recommended that “banks adopt approaches to the remuneration of Aggregators and Mortgage Brokers that do not directly link payments to loan size and reflects a holistic approach to performance management.” The Review further recommended that “full implementation should be achieved by no later than the performance year that begins in 2020.”
ANZ, Commonwealth Bank, NAB and Westpac have explicitly committed to implementing all of Sedgwick’s Recommendations, including those involving broker remuneration. Of the non-majors, at the time of writing, Suncorp had welcomed the Review without explicitly committing to implement its recommendations.
CBA’s chief executive Ian Narev commented that: "we will implement many of the recommendations by 1 July 2017 and will have all changes in place by the following financial year.” NAB vowed to implement all changes by 2020.
The Review, which was sponsored by the Australian Bankers Association but operationally independent, also recommended that banks end volume-based incentives and remove non-transparent soft dollar incentives, instead sponsoring training. Increasing commission for particular campaigns, as many banks have done in recent years, was also condemned, whilst the report called for increased ‘end-to-end’ governance of mortgage brokers to bring them under the same standards as branch staff.
With regard to commission levels, the report noted that “an alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.” However, the Report made it clear that it did not support client fees as these could threaten the viability of the industry.
In their responses, several banks promised to work with brokers and regulators when changing commissions. Anna Bligh, chief executive of the Australian Bankers Association, commented that: “Mortgage brokers play an important role in supporting competition in the home loan lending market…The ABA will seek guidance from the Australian Securities and Investments Commission and liaise with the Australian Competition and Consumer Commission as appropriate, in particular around changing payments to third parties like mortgage brokers.”
Such changes were likely to be ‘challenging’, according to George Frazis, chief executive, of Westpac’s Consumer Bank, who said such changes “may ultimately require regulatory or legislative intervention,”
FBAA executive director Peter White, speaking to MPA, dismissed the Sedgwick Review as a cover for banks trying to avoid a Royal Commission and said that brokers’ livelihoods will not be immediately affected. Responding to the review White argued “this person does not make the laws of this country. Yes it’s a lobbying group; yes there is some influence there but at the end of the day ASIC is our policeman, the Minister makes the decisions there are many people at the table lobbying the Minister and ASIC and we are one of the most vocal.”
The MFAA expressed concern at Sedgwick's findings and argued it should have taken its lead from ASIC's Review. CEO Mike Felton argued that “the ABA Review in essence recommends a consolidation of power to lenders, giving them complete oversight of mortgage brokers. This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the Big Four and away from consumers’ interests.”
You can read the full report on the Sedgwick Review's website: http://retailbankingremreview.com.au/
Several major and non-major banks will end the paying to brokers of commissions directly linked to loan size.
The move followed yesterday’s publication of the Sedgwick Review – separate to ASIC’s recent review - which recommended that “banks adopt approaches to the remuneration of Aggregators and Mortgage Brokers that do not directly link payments to loan size and reflects a holistic approach to performance management.” The Review further recommended that “full implementation should be achieved by no later than the performance year that begins in 2020.”
ANZ, Commonwealth Bank, NAB and Westpac have explicitly committed to implementing all of Sedgwick’s Recommendations, including those involving broker remuneration. Of the non-majors, at the time of writing, Suncorp had welcomed the Review without explicitly committing to implement its recommendations.
Recommendation 18
Banks adopt approaches to the remuneration of Aggregators and Mortgage Brokers that do not directly link payments to loan size and reflects a holistic approach to performance management
Banks adopt approaches to the remuneration of Aggregators and Mortgage Brokers that do not directly link payments to loan size and reflects a holistic approach to performance management
CBA’s chief executive Ian Narev commented that: "we will implement many of the recommendations by 1 July 2017 and will have all changes in place by the following financial year.” NAB vowed to implement all changes by 2020.
The Review, which was sponsored by the Australian Bankers Association but operationally independent, also recommended that banks end volume-based incentives and remove non-transparent soft dollar incentives, instead sponsoring training. Increasing commission for particular campaigns, as many banks have done in recent years, was also condemned, whilst the report called for increased ‘end-to-end’ governance of mortgage brokers to bring them under the same standards as branch staff.
With regard to commission levels, the report noted that “an alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.” However, the Report made it clear that it did not support client fees as these could threaten the viability of the industry.
In their responses, several banks promised to work with brokers and regulators when changing commissions. Anna Bligh, chief executive of the Australian Bankers Association, commented that: “Mortgage brokers play an important role in supporting competition in the home loan lending market…The ABA will seek guidance from the Australian Securities and Investments Commission and liaise with the Australian Competition and Consumer Commission as appropriate, in particular around changing payments to third parties like mortgage brokers.”
Such changes were likely to be ‘challenging’, according to George Frazis, chief executive, of Westpac’s Consumer Bank, who said such changes “may ultimately require regulatory or legislative intervention,”
FBAA executive director Peter White, speaking to MPA, dismissed the Sedgwick Review as a cover for banks trying to avoid a Royal Commission and said that brokers’ livelihoods will not be immediately affected. Responding to the review White argued “this person does not make the laws of this country. Yes it’s a lobbying group; yes there is some influence there but at the end of the day ASIC is our policeman, the Minister makes the decisions there are many people at the table lobbying the Minister and ASIC and we are one of the most vocal.”
The MFAA expressed concern at Sedgwick's findings and argued it should have taken its lead from ASIC's Review. CEO Mike Felton argued that “the ABA Review in essence recommends a consolidation of power to lenders, giving them complete oversight of mortgage brokers. This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the Big Four and away from consumers’ interests.”
You can read the full report on the Sedgwick Review's website: http://retailbankingremreview.com.au/
