Easy ride for self-regulation halted as consumer groups come out with calls for commission bans, new laws and a seat at the table
Easy ride for self-regulation halted as consumer groups come out with calls for commission bans, new laws and a seat at the table
Industry hopes of easy self-regulation were shattered yesterday, as an alliance of consumer groups unveiled their vision for the future of broker commissions.
In their submission to the Treasury, following ASIC’s remuneration review, CHOICE, Consumer Action, Financial Counselling Australia and the Financial Rights Legal Centre made a number of controversial suggestions for changes to broker commission.
These included scrapping trail commissions “as they offer no benefit to consumers”, replacing upfront commission with fixed fees and “at minimum” de-linking commission payments from loan size. Bonus commissions should also be banned “within the year” and the NCCP amended to go beyond the current requirement for brokers to provide a ‘not unsuitable’ loan.
Call for a seat at the table
Changes to remuneration are currently being discussed by a combined industry forum made up of the MFAA, FBAA, ABA and COBA. Consumer groups, who have yet to be prominently involved, are now calling for a seat at the table.
“Reform must be focused on what’s best for consumers, not what works for brokers, aggregators or lenders,” their submission notes, “several recommendations from the review leave solutions to widespread industry problems in the hands of industry. This is not good enough.”
Whilst not officially endorsed by the Treasury, representatives from the Treasury and ASIC have been present at the combined industry forum. In an interview with MPA, MFAA CEO Mike Felton suggested that regulators were in favour of self-regulation, although his comments were later criticised by the FBAA.
Consumer groups were adamant in their call for top-down regulation: “the best option to deliver strong consumer outcomes would be for the regulator or Federal Government to take responsibility for defining and delivering reform.”
An industry code should be developed covering the entire industry and accelerated if necessary for Federal Government Reform, the submission urges.
Industry reaction
Within hours of the consumer groups’ report being made public industry associations made their criticisms public.
“If they knew their subject matter, they would know that trail commission is paid to brokers to offset costs of providing ongoing customer service” argued FBAA CEO Peter White, pointing to the need for ongoing support required by the NCCP.
Both broking associations criticised proposed changes to commissions, with MFAA CEO Felton claiming that “a single, lender-funded, fee-for-service would lead to a standardisation of all fees, which we believe ASIC itself does not support and we believe would also be considered anti-competitive by the ACCC.”
Felton also rejected the consumer groups’ call for greater involvement in the combined industry forum, which he said was already “made up of a broad range of key industry stakeholders to seek the best possible outcomes for consumers.”
Curbs on property investment advice
Whilst recommendations for commission changes will invariably dominate headlines, the consumer groups’ submission also contains a recommendation with potential long-term consequences for broking.
They want the Federal Government to bring property investment advice – which many brokers provide, unregulated – into line with financial investment advice, which is heavily regulated. In that case, brokers looking to provide property investment advice would need to acquire and Australian Financial Services License (AFSL), requiring extensive work.
According to consumer groups “gaps in the law mean that property salespeople can push poor lending strategies which brokers then help implement.”
Read more about submissions to the Treasury's commissions consultation: Commission changes to be decided by industry, not ASIC
