MFAA and FBAA discuss upfront being paid on drawn amount whilst consumer advocates call for end to trail commission
MFAA and FBAA discuss upfront being paid on drawn amount whilst consumer advocates call for end to trail commission
The MFAA, FBAA and a coalition of consumer advocates – including CHOICE - have given their views on broker commissions to the Treasury.
They were responding to ASIC’s Review of Mortgage Broker Remuneration and ASIC’s suggestion that commission could be connected to LVR, to avoid incentivising consumers to borrow more.
Neither the MFAA nor the FBAA endorsed the LVR-driven approach, with the MFAA noting that: “from a broker’s perspective, the biggest problem is that, to a large degree, this model would result in a remuneration structure that has an inverse relationship to broker effort.”
However, both broker associations tentatively endorsed the suggestion, also made by NAB, that upfront be paid on only the amount drawn down, net of offset. The MFAA argued that such an approach would only work if upfront was later topped up, based on the offset balance, whilst the FBAA cautioned that “any such requirement would need to be subject to reasonable timeframes or possibly a utilisation trigger that is based on more than mere settlement.”
Consumer advocates, on the other hand, called for upfront commission to be replaced by a flat fee, either lump sum or rates based on hours of work. They argued that trail should be abolished as “the only work required for this payment is to not switch the customer to another product.”
Divided views on self-regulation
In public at least, the combined industry forum has appeared to operate smoothly and was endorsed by Minister Kelly O’Dwyer earlier this week.
Not everyone is happy, however; consumer advocates claim they are being excluded from the forum and that it is failing consumers: “several recommendations from the review leave solutions to widespread industry problems in the hands of industry. This is not good enough.” They have called for the Federal Government to take responsibility for delivering reform.
Both Mark Haron of Connective and a spokesperson from the Australian Bankers Association separately told MPA that the forum was creating a framework to represent consumer advocates and that this had always been part of the plan.
Surprisingly the FBAA, who have been part of the forum since its inception, did not mention it once in their submission.
ASIC's data past its sell-by-date
The FBAA’s submission included some harsh criticism of ASIC’s Review itself.
“We also note that some of the data is quite old, dating back to 2012 and possibly earlier,” the submission notes, “this was just two years into the establishment of the NCCP framework and a time when there was still significant uncertainty around how the specifics of the legislation would operate.”
The FBAA point out that in recent years volume bonuses have been largely removed; soft dollar benefits aligned with educational content; lenders ceasing to link commission to sales campaigns and promotions.
Read what the banks and aggregators told the Treasury about broker commissions
The MFAA, FBAA and a coalition of consumer advocates – including CHOICE - have given their views on broker commissions to the Treasury.
They were responding to ASIC’s Review of Mortgage Broker Remuneration and ASIC’s suggestion that commission could be connected to LVR, to avoid incentivising consumers to borrow more.
Neither the MFAA nor the FBAA endorsed the LVR-driven approach, with the MFAA noting that: “from a broker’s perspective, the biggest problem is that, to a large degree, this model would result in a remuneration structure that has an inverse relationship to broker effort.”
However, both broker associations tentatively endorsed the suggestion, also made by NAB, that upfront be paid on only the amount drawn down, net of offset. The MFAA argued that such an approach would only work if upfront was later topped up, based on the offset balance, whilst the FBAA cautioned that “any such requirement would need to be subject to reasonable timeframes or possibly a utilisation trigger that is based on more than mere settlement.”
Consumer advocates, on the other hand, called for upfront commission to be replaced by a flat fee, either lump sum or rates based on hours of work. They argued that trail should be abolished as “the only work required for this payment is to not switch the customer to another product.”
Divided views on self-regulation
In public at least, the combined industry forum has appeared to operate smoothly and was endorsed by Minister Kelly O’Dwyer earlier this week.
Not everyone is happy, however; consumer advocates claim they are being excluded from the forum and that it is failing consumers: “several recommendations from the review leave solutions to widespread industry problems in the hands of industry. This is not good enough.” They have called for the Federal Government to take responsibility for delivering reform.
Both Mark Haron of Connective and a spokesperson from the Australian Bankers Association separately told MPA that the forum was creating a framework to represent consumer advocates and that this had always been part of the plan.
Surprisingly the FBAA, who have been part of the forum since its inception, did not mention it once in their submission.
ASIC's data past its sell-by-date
The FBAA’s submission included some harsh criticism of ASIC’s Review itself.
“We also note that some of the data is quite old, dating back to 2012 and possibly earlier,” the submission notes, “this was just two years into the establishment of the NCCP framework and a time when there was still significant uncertainty around how the specifics of the legislation would operate.”
The FBAA point out that in recent years volume bonuses have been largely removed; soft dollar benefits aligned with educational content; lenders ceasing to link commission to sales campaigns and promotions.
Read what the banks and aggregators told the Treasury about broker commissions
