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A big four bank has announced changes to how mortgage broker commissions are calculated, in line with recommendations of the ASIC Broker Remuneration Review and the Sedgwick Retail Banking Remuneration Review.
NAB has become the first major bank to implement the recommendations from the ASIC and Sedgwick reviews, which were backed by the Combined Industry Forum package of reforms.
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ASIC last year recommended that lenders change their standard commission arrangements so that brokers are not incentivised “purely on the size of the loan”.
Instead, ASIC suggested that lenders could “reflect the loan-to-value ratio (LVR) of the loan (and other considerations such as compliance metrics) in how they calculate upfront and trail commissions”.
It also suggested that lenders “do not structure their incentives in a way that encourages the creation of larger loans that initially have large offset balance”.
As such, from November 2018, NAB and Advantedge will calculate the upfront commission a broker receives for a home loan based on the amount drawn instead of the total approved facility and net of any offset facility.
The bank outlined that should a customer receive a $500,000 home loan and put $100,000 of that loan into an offset account, the broker would receive commission on the drawn amount of $400,000.
NAB and Advantedge have stated that should a customer retain funds to be used at a later date, it will pay upfront commission on the subsequent drawdown amount (i.e. on loan funds used after the initial drawdown), net of any linked offset facility, provided the initial settlement occurs after Monday 12 November 2018 and the subsequent drawdown:
- Occurs on or after the sixth calendar day following the initial drawdown date; and
- Occurs within 12 months of the initial drawdown date; and
- Is for an amount equal to, or greater than $20,000, up to the maximum loan split limit.
In an update to brokers, NAB and Advantedge said that the maximum commission payable for a subsequent drawdown “must not exceed the commission that would have been payable if the loan account was fully drawn as at five calendar days after the initial settlement date”.
Further, brokers will not be paid commission on subsequent drawdowns "where it exceeds the maximum commission payable if the loan was fully drawn at settlement, or, for construction loans, non-term loans or where a variation to the original loan has occurred, or the subsequent drawdown was not disclosed in the loan application”.
The commission changes will also see updates to clawbacks – with Advantedge outlining it will update its clawback model for new loans and variations approved and instructed from Monday 12 November 2018 so that 100 per cent clawback will apply up to 12 months, a 50 per cent clawback will apply between 13 and 24 months and no clawback will be applied after two years.
NAB executive general manager of broker partnerships Anthony Waldron said that NAB is committed to mortgage broking as a channel of choice for consumers, and that this change will support brokers to continue to put customers’ interests first.
“Mortgage brokers play an important role in helping Australians arrange their home loans, and NAB continues to value and support them,” Mr Waldron said.
“We recognise that Australians increasingly use mortgage brokers, and we want to continually improve as an industry to deliver the best outcomes for Australians.”
Mr Waldron is also chair of the Combined Industry Forum, which is made up of industry bodies, lenders, mortgage brokers and their representatives, aggregators, introducers and consumer groups.
“As an industry, we are working together to make changes that are focused on doing the right thing, and to improve consumer trust,” Mr Waldron said.
Meanwhile, Advantedge released the following statement: “The changes centre around the importance of ensuring customers obtain a loan which is appropriate for their needs in terms of size and structure, is affordable, is applied for in a compliant manner, and meets the customer’s objectives at the time of seeking the loan.
“These changes are in line with the reforms agreed to by the Combined Industry Forum, and align with the recommendations of the ASIC Broker Remuneration Review and Sedgwick reports.
“We are also making changes to the Advantedge clawback model, and commission payments cycle. Advantedge is committed to ensuring we continue to deliver good customer outcomes – and supporting brokers to do this, and maintaining confidence in the mortgage broking industry.”
The Combined Industry Forum (CIF) released its reform package in December 2017, outlining six principles to help ensure better consumer outcomes, preserve and promote competition and consumer choice, and improve standards of conduct and culture in mortgage broking.
The industry has also proposed a standard definition for “good customer outcomes”, which looks at the size and structure of the loan, affordability, responsible lending requirements and individual customer needs.
The CIF hosted an event yesterday which further outlined its work on mortgage broking reforms.
In coming months, NAB has said that it will make further changes in line with the agreed principles of the CIF to ensure “better consumer outcomes and improved standards of conduct and culture, while preserving competition in mortgage broking”.
[Related: NAB backs remuneration structure but calls for ‘improvements’]
