A group of 11 independent broker firms has put forward its recommendations to Treasury on how to improve the sector
A group of 11 independent broker firms has submitted a report to Treasury detailing seven recommendations it believes could improve the broking sector.
The report was commissioned and funded by some of the industry’s leading brokers in response to the royal commission and Productivity Commission’s inquiries.
One of the Mortgage Broker Forum’s (MBF) recommendations calls for the creation of “Registered Credit and Compliance Holders”, which would codify and expand the role of aggregators to give them more formal compliance responsibilities over their brokers and provide ASIC with greater oversight of the sector through these groups.
“Aggregators should be reconstituted to have a greater role in overseeing mortgage brokers, including annual compliance checks,” the group said, adding that these annual audits should be done to ensure brokers are keeping adequate notes and records of client discussions.
“A more formal framework for mortgage brokers provides them with an incentive to ensure they are upholding standards. It will weed out the less compliant brokers.”
Putting clients first
The Mortgage Broker Forum also recommended that the industry employ “best practice guidelines” for brokers earning trail. Under those guidelines, brokers would need to demonstrate that they put their customers’ interests before their own and prove that they have been in regular contact with the customer and have offered annual reviews, among other requirements.
In general, most of the recommendations put forward by the Mortgage Broker Forum, including on commissions, soft dollar benefits and transparency of ownership, mirror the ones previously presented by the Combined Industry Forum.
“The Mortgage Broker Forum intends to work alongside others in the industry to improve governance and customer outcomes, while protecting the vital economic benefit provided by mortgage brokers,” the group said.
While it agreed that the industry needs to find new ways to achieve better outcomes for clients, it said wholesale change to the remuneration structure is not necessary, as concluded by several other reports.
Trailing commissions
On the contentious topic of trail, the broker group said “the benefits of trail commissions have been misunderstood by some regulators, governments and interest groups”. Abolishing trail, as urged by the Productivity Commission, would have a number of longterm consequences, the MBF said.
Without a significant rise in upfront commissions, many brokers would no longer be able to afford to operate, and the churning of home loans would likely become more prevalent, the group warned.
Trail also recognises that mortgage brokers are now doing more work on behalf of home loan customers after loan settlement, such as assisting them with account set-ups and providing ongoing advice to reflect their changing circumstances.
“If trailing commissions are removed, the majority of mortgage brokers and their customers will be penalised for the behaviour of a handful of poor mortgage brokers. The current system of upfront and trailing commissions has operated well, as demonstrated by growing number of customers who use mortgage brokers,” the MBF said.
