NFBD founder opposes call for probe of broker pay, BID compliance
The founder and CEO of National Finance Brokers Day says calls by consumer groups for an ASIC review of mortgage broker remuneration and the quality of brokers’ credit advice are “disconnected from reality”.
Dino Pacella (pictured above left), a well-known figure in the mortgage and finance industry, has voiced his strong opposition to the calls for a review.
The review is one of 11 recommendations made in a submission to the Senate from consumer rights and legal organisations, including CHOICE, the Consumer Policy Research Centre (CRPRC), Mortgage Stress Victoria, Financial Counselling Australia and seven other groups.
Their submission, prepared by the CRPC and Mortgage Stress Victoria, has been provided to the Senate economic references committee inquiry into the financial regulatory framework and homeownership, which has been holding public hearings in recent weeks.
Much of the debate at the inquiry has focused on APRA’s 3% home loan serviceability buffer, with industry bodies such as the MFAA, FBAA and Australian Banking Association, aggregator Mortgage Choice and NAB calling for changes to the buffer, while CommBank and Westpac prefer the status quo.
The consumer groups’ joint submission to the Senate is mostly about responsible lending laws, which they say are working as intended.
However, recommendation nine seeks confirmation on whether mortgage broker market protections are working.
“ASIC should be directed to undertake new research into mortgage broker remuneration and the quality of recommendations by brokers,” the submission reads.
In response, Pacella has emphasised the critical role mortgage brokers play in helping Australians achieve homeownership and the fact that brokers already operate within an extensive regulatory framework.
“As the CEO of National Finance Brokers Day, I’ve seen firsthand how mortgage brokers provide invaluable support to consumers by delivering personalised advice that helps them navigate complex financial decisions,” said Pacella.
“The Best Interests Duty ensures that brokers are obligated to prioritise their clients’ needs, and multiple past reviews have confirmed that the current remuneration structure is fair to both brokers and consumers.”
Pacella said the mortgage broking industry, represented by both the MFAA and the FBAA had stood firm against the need for further reviews.
“According to industry leaders, there is no evidence of systemic harm within the industry, and complaints against brokers remain exceptionally low,” he said.
Data from the Australian Financial Complaints Authority shows that less than 0.5% of all complaints they receive relate to mortgage brokers.
“These calls for another review seem disconnected from reality,” said Pacella.
“The data is clear: complaints against brokers are minimal, and the industry has proven time and again that it is serving clients well. Instead of imposing additional scrutiny, we should be focusing on supporting brokers so they can continue to provide the essential services millions of Australians rely on.”
As the mortgage broker industry continued to evolve, Pacella called for any regulatory changes to be backed by evidence and actual need rather than speculation from groups that may not fully understand the complexities of the finance sector.
Consumer groups want greater broker oversight
One of the organisations calling for an ASIC review of mortgage broker remuneration and the quality of broker recommendations is consumer advocacy group CHOICE.
Tom Abourizk (pictured above right), head of policy at CHOICE, acknowledged the impacts of BID and that people “were voting with their feet” by choosing to use mortgage brokers, with brokers enjoying the majority of market share for home loans.
Abourizk said the government had stopped short of implementing what the Hayne royal commission had recommended, which was to remove lender commissions to brokers, with borrowers paying mortgage brokers upfront to remove any possible conflict of interest.
“While we’re not pushing for that, but we would like to see more research into how mortgage brokers are operating and how BID is working,” Abourizk said.
He said it was unclear whether ASIC had done any studies into brokers' use of BID since it was introduced and there was a definite need for more oversight.
“There needs to be checks in place to see if brokers are sending all their loans to particular lenders such as the big four,” Abourizk said.
The groups’ submission stated BID hadn’t been substantially tested by the regulator: “We have no sense of how many brokers are complying with the best interest duty. Crucially, we do not know how many brokers are recommending good quality loans from a variety of lenders to their customers.”
The submission referred to a 2017 ASIC study into mortgage broker remuneration which “found that loans obtained through brokers were more likely to be interest-only and for larger amounts, indicating that risky loans were more likely to be arranged through this channel.
“It also found that brokers tended to recommend loans from a very small number of lenders, with individual broker businesses directing 80% of loans to four preferred lenders,” Abourizk said. “With mortgage brokers now arranging most loans in the home lending market, regulators need to test if legal protections are working and if brokers are helping or harming competition in the market in 2024.”
Concerns over bank staff commissions
Abourizk said the fact that a number of the big banks, such as Commonwealth Bank, NAB and Westpac had lifted caps on commissions for their lending staff was a big concern.
“They are not subject to BID and their customers can’t shop around,” he said.
The submission stated major banks had stepped away from their commitments to curb conflicted remuneration in lending, with bonuses preferencing sales results.
“This shows that banks cannot be trusted to self-regulate conflicted remuneration,” the submission said. “Like with financial advice, limits on conflicted remuneration should be formalised in legislation rather than left for reversible industry commitments.
