John Flavell: The year of broker scrutiny

Mortgage Choice CEO John Flavell explains why he’s backing ASIC and blasting Sedgwick when it comes to remuneration

What a year it has been so far! Within the first few months of this year, we have seen not one but two reports that focus on broker remuneration structures.

In March, ASIC unveiled its Review of Mortgage Broker Remuneration report. I, for one, welcomed the report and its findings.

Over the last 12 months or so, Mortgage Choice worked very closely with ASIC, providing the regulator with all the information it needed in order to conduct a thorough investigation into broker remuneration structures.

And we weren’t the only broker to work closely with the industry watchdog. ASIC constantly asked for feedback and the industry was quick to provide it with exactly that.

From the time ASIC launched its investigation and right throughout the entire process, it sought industry input and we happily obliged.

Thanks to ASIC’s extensive consultation process, I believe it presented a well-thought-out, fair and reasonable report.

At the core of its report, ASIC made it clear that brokers play a very important role in the home loan market.

According to the report, brokers can help match the needs of consumers with the right home loan products and lenders; they navigate the home loan application process, which can be daunting for many consumers, and improve consumer understanding of home loans, as well as their financial literacy.

Indeed, ASIC made it abundantly clear that brokers play an important role not only in promoting good customer outcomes but also in driving competition within the home loan market.

In addition, ASIC has made it clear that it believes the logic behind the current commission model, which involves an upfront and trailing commission payment, is sound. That said, the regulator also believes there is the potential to make some subtle changes around the fringes of the current remuneration structure. This feedback wasn’t surprising; in fact we were totally prepared for it.

At the moment, Mortgage Choice looks forward to continuing its work with ASIC and conducting an ongoing consultation with the Treasury over the coming period.

But while we welcome ASIC’s Review of Mortgage Broker Remuneration report, I cannot say the same for the second report into broker remuneration structures we have seen this year.

One month after ASIC released its report, Stephen Sedgwick released his Retail Banking Remuneration Review. Unfortunately, this report was long on anecdote and short on facts.

I do not believe it is brokers’ or the Australian Bankers’ Association’s role to tell regulators what to do, or what changes need to be made.

While some of the recommendations made within the review could be considered ‘interesting’, I think the timing of Sedgwick’s report was odd, to say the least. It is important to note that at the time Sedgwick released his review, ASIC was (and is) still going through its process.

So, with regard to the two reports into broker remuneration structures, I just have this to say: ASIC’s Review of Mortgage Broker Remuneration was well researched, and the level of consultation it went through should be commended.

Looking ahead, at Mortgage Choice we will be focusing our energy and efforts on working with the regulator.
 

John Flavell has been CEO of Mortgage Choice since early 2015. Before that he led NAB’s wealth advice arm and ran NAB’s third party channel operation. He also has experience of working at Aussie and RAMS. Mortgage Choice was extensively involved in the consultation process for ASIC’s Review of Mortgage Broker Remuneration and was mentioned in the report.