A determination to show it will continue to support and back the industry
Connective has been a huge advocate of the broker channel throughout the royal commission as well as in the months following the final report when it joined other industry players to campaign behind closed doors and in the public eye.
Since Treasury’s release of its draft NCCP legislation at the end of August, the aggregator has been working closely with its brokers and other industry partners to determine what the proposed best interests duty would mean for brokers and how it might work.
The duty follows the recommendations made by Commissioner Kenneth Hayne in the royal commission’s final report in February and will create an obligation for mortgage brokers to act in the best interests of the consumer. Of course, most would argue they do so already.
Connective executive director Mark Haron says the fact that brokers already do this puts the industry in good stead.
“We are in a good position to adopt a best interest duty. Brokers already put their customers’ interests ahead of their own, so we’re most of the way there,” he says.
As part of the aggregator’s advocacy of the broker channel, Haron says he is continuing to work through a number of things with Treasury and the rest of the industry ahead of the best interests duty coming into play.
Connective has submitted its response to the draft legislation in advance of the 4 October deadline with feedback and input from its brokers.
Treasurer Josh Frydenberg has said he expects the duty to be adopted on 1 July 2020, but Haron says that time frame depends on legislation getting through Parliament and the Senate this year.
“If it doesn’t get through this year, we’ll argue that the date needs to be pushed back. The industry should have at least six months or longer to ensure we get everything in place from a compliance perspective to start operating under the new legislation. That’s crucial,” he says.
One of the things brokers can do to improve is to demonstrate exactly how they act in customers’ best interests.
“Show customers the range of products considered, explain why and work with the customer to determine which product is appropriate,” he says.
The other areas Haron and Connective continue to focus on are remuneration and clawbacks.
“Brokers are so focused on clawbacks as it has the potential to impact their business and livelihood significantly. I’m doing everything I can to work with the banks on a fair arrangement,” Haron says.
He explains that clawback is nothing to do with poor behaviour, but “more than likely it’s a set of circumstances beyond the broker’s control”.
While Haron says brokers can take some responsibility and have conversations with their customers about their plans for their properties within the next two years, in circumstances where no one could have predicted what was going to happen, the bank should offset the costs.
"In the background, myself and many others are looking at how we make clawbacks more feasible and fairer for brokers. The harsh reality is if we were to get rid of clawbacks lenders would reduce the upfront payments,” he says.
Between now and the end of the year, Connective will remain focused on the best interests duty and conflicted remuneration. Haron says he believes some lobbying will be required “to ensure the legislation that gets through is better than the current format”.
“We are committed to advocating on behalf of our brokers and continually updating them on the changes that will impact the industry and their business,” he says.
Next year, the focus will turn to the review of upfront and trail commission, and ensuring that regulators and the government understand why trail is so important. Haron says it will also be imperative to demonstrate what mortgage brokers do for the economy, what they do on a day-to-day basis, and the diversity of transaction types they deal with.
As in the aftermath of the royal commission, a united industry is vital.
“There’s nothing politicians and regulators hate more than a dozen selfinterested parties from the same industry coming at them with their own agenda, instead of a single perspective,” Haron says.
“As an industry we need to continue to demonstrate that we are united and professional.”
