The MFAA says a fee-for-service model remains “highly inappropriate” and reaffirms the importance of trail in its submission
The MFAA’s submission to the Productivity Commission’s draft report into competition in the Australian financial system released Thursday (23 March) reaffirms the association’s stance on the importance of trail commission and refutes the suggestion that brokers could be paid directly by consumers. Here are the main takeaways from the MFAA’s submission.
This would inevitably reduce the number of brokers in the industry, and reduce the options and access to customers, the submission said.
The MFAA said this is not surprising because the majority of lenders follow a policy of pricing parity across their proprietary and third party channels. Brokers are particularly important and relevant to consumers in rural and regional areas, and help give smaller lenders a footprint where they don’t have any branches.
The MFAA said it’s also important to note that “brokers are licensed and trained to provide a unique combination of choice, convenience, personalised service and credit advice to customers”, compared to bank staff who are only trained to sell the bank's products.
Under the National Consumer Credit Protection Act 2009, brokers and lenders are required to provide a loan which is “not unsuitable” to a customer’s situation. The NCCP Act’s obligations on brokers ensure customers are not disadvantaged by any conflict of interest.
The MFAA said it’s concerned that the ‘best interest duty’ is not only highly subjective, but will require an extensive comparison of products, which is unrealistic given that there can be up to 1,500 products available across 40 lenders on an aggregator panel.
There is a significant difference between branch and broker channels in terms of services provided. First off, brokers are required by law to have a licence, while branch staff do not.
Brokers are also often more experienced. They have greater flexibility, and are able to provide significant benefits to consumers that bank branches find difficult to access, the MFAA argued.
The removal of the broker channel or imposing regulations that will affect its image to customers would greatly impact non-bank lenders, as well as small and large lenders that do not possess an extensive branch network.
Without having to worry about operation and infrastructure costs associated with maintaining a branch networks, brokers are more able to fully focus on providing efficient, variable cost structure to lenders, it added.
