Government report takes aim at bank-owned aggregators and declares that “the revolution is now part of the establishment.”
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Government report takes aim at bank-owned aggregators and declares that “the revolution is now part of the establishment.”
Brokers should have a legal responsibility to act in their client’s best interests, the Government’s Productivity Commission has recommended.
“The Australian Securities and Investments Commission should impose a clear legal duty on mortgage aggregators owned by lenders to act in the consumer’s best interests,” the Commission’s Competition in the Australian Financial System Draft Report proposes.
“Such a duty should be imposed even if these aggregators operate as independent subsidiaries of their parent lender institution, and should also apply to the mortgage brokers operating under them.”
The Commission claims that brokers have not increased price competition and that due to bank ownership of aggregators, non-transparent fees and trailing commissions “the revolution is now part of the establishment.”
The Commission, which as MPA has previously reported is independent of both ASIC and the recently announced Royal Commission, produced a video for consumers (which you can watch below) where the narrator explains “whether you get told it or not, we all pay one way or another for advice on good deals…the adviser is not always working just for you and there should be a simple way to check that advice.”
“They’re just trying to justify their existence”
The MFAA and FBAA were highly critical of the Productivity Commission’s report.
“It’s actually the broker space that brought competition to the market,” FBAA executive director Peter White told MPA sister title Australian Broker “back in the 70s and 80s up to mid-90s, there was absolutely zero competition.”
White also criticised a recommendation for brokers to have a ‘plain English’ discussion with customers about ownership, claiming that the industry as already working on this: “when people make something out of nothing, it feels like they’re just trying to justify their existence.”
The MFAA claims that the Productivity Commission did not acknowledge the recommendations of the Combined Industry Forum. The CIF requires brokers to provide ‘good consumer outcomes’, albeit not yet legally binding.
In fact, the Commission did acknowledge the CIF's work but notes that “in the absence of clearly enforceable obligations, ASIC must set better information provision standards. “
The Australian Bankers Association released a cautiously-worded statement that it would "carefully analyse" the report, whilst the Customer Owned Banks Association welcomed the Commission's findings as a "wake up call".
LMI refunds, trail and more
Brokers should not expect imminent legal changes, however.
The Productivity Commission is an advisory body and the Draft Report will now be followed by a period of consultation, in which brokers can make submissions.
Beyond client’s best interests, the Commission was also critical of trail commissions – which it claims reduces consumer’s ability to switch lenders – and of lenders mortgage insurance. The Commission recommends that lenders offer LMI refunds to borrowers when they refinance.
Interest rates and commercial lending could also be impacted by a number of other recommendations by the Commission aimed at levelling the playing field.
The Productivity Commission's video for consumers:
Frustrated by slow turnarounds, bad service or poor rates? Here’s YOUR chance to do something about it.
MPA’s Brokers on Banks survey is looking for your feedback now. In less than five minutes you can provide the data we need to hold the banks to account and drive real change in the industry.
Click here for the survey. Please do it now, as the survey closes at the end of this week.
Brokers should have a legal responsibility to act in their client’s best interests, the Government’s Productivity Commission has recommended.
“The Australian Securities and Investments Commission should impose a clear legal duty on mortgage aggregators owned by lenders to act in the consumer’s best interests,” the Commission’s Competition in the Australian Financial System Draft Report proposes.
“Such a duty should be imposed even if these aggregators operate as independent subsidiaries of their parent lender institution, and should also apply to the mortgage brokers operating under them.”
The Commission claims that brokers have not increased price competition and that due to bank ownership of aggregators, non-transparent fees and trailing commissions “the revolution is now part of the establishment.”
The Commission, which as MPA has previously reported is independent of both ASIC and the recently announced Royal Commission, produced a video for consumers (which you can watch below) where the narrator explains “whether you get told it or not, we all pay one way or another for advice on good deals…the adviser is not always working just for you and there should be a simple way to check that advice.”
“They’re just trying to justify their existence”
The MFAA and FBAA were highly critical of the Productivity Commission’s report.
“It’s actually the broker space that brought competition to the market,” FBAA executive director Peter White told MPA sister title Australian Broker “back in the 70s and 80s up to mid-90s, there was absolutely zero competition.”
White also criticised a recommendation for brokers to have a ‘plain English’ discussion with customers about ownership, claiming that the industry as already working on this: “when people make something out of nothing, it feels like they’re just trying to justify their existence.”
The MFAA claims that the Productivity Commission did not acknowledge the recommendations of the Combined Industry Forum. The CIF requires brokers to provide ‘good consumer outcomes’, albeit not yet legally binding.
In fact, the Commission did acknowledge the CIF's work but notes that “in the absence of clearly enforceable obligations, ASIC must set better information provision standards. “
The Australian Bankers Association released a cautiously-worded statement that it would "carefully analyse" the report, whilst the Customer Owned Banks Association welcomed the Commission's findings as a "wake up call".
LMI refunds, trail and more
Brokers should not expect imminent legal changes, however.
The Productivity Commission is an advisory body and the Draft Report will now be followed by a period of consultation, in which brokers can make submissions.
Beyond client’s best interests, the Commission was also critical of trail commissions – which it claims reduces consumer’s ability to switch lenders – and of lenders mortgage insurance. The Commission recommends that lenders offer LMI refunds to borrowers when they refinance.
Interest rates and commercial lending could also be impacted by a number of other recommendations by the Commission aimed at levelling the playing field.
The Productivity Commission's video for consumers:
Frustrated by slow turnarounds, bad service or poor rates? Here’s YOUR chance to do something about it.MPA’s Brokers on Banks survey is looking for your feedback now. In less than five minutes you can provide the data we need to hold the banks to account and drive real change in the industry.
Click here for the survey. Please do it now, as the survey closes at the end of this week.
