94% of broker clients unconcerned with broker remuneration

It includes both broker and borrower surveys conducted by CoreData and MyNextAdvice earlier this year.

One of the key findings of the 161-page submission is that broker clients are not concerned by the way brokers are currently remunerated (via upfront and trail commissions) – and while the vast majority would use a broker for future loan advice, the bulk would not wish to pay a fee for this service.

For example, the submission includes the Client Experience Report – collating the results of a survey conducted by MyNextAdvice between 4 March to 16 April 2021 in which 629 FBAA broker clients were asked about their perceptions of best interests, their thoughts on the current broker remuneration structure and their overall satisfaction.

Approximately half had used a broker in the previous six months with the other half having transacted more than six months prior to responding to the survey.

The Client Experience Report found that 98.3 per cent of clients believed their broker had acted in their best interests (even before the legal requirement came into force on 1 January 2021), and that nearly 99 per cent of clients said they would use a broker again in future.

When asked about whether they had any concerns relating to how brokers were paid, 93.8 per cent said they had no concern about commissions. Only 1.9 per cent said they were concerned about commissions.

The survey also revealed that the main reason cited by FBAA broker clients for choosing a mortgage broker for their next home loan was “I believe a mortgage broker will have my best interests at heart” (33.2 per cent), followed by “I have an existing relationship with a mortgage broker” (20.7 per cent).

However, while nearly all broker clients said they would use a broker again for future loan needs, less than 30 per cent would use the services of a broker if they had to pay a fee for service. 

Around two-fifths (42 per cent) said they were unsure if they would pay a fee (however, the researchers noted that as clients were not provided with any details of what such a fee would entail, this was perhaps unsurprising).

The survey echoes similar findings made by Momentum Intelligence in 2019, when the inaugural Consumer Access to Mortgages report found that nearly two-thirds of borrowers (58 per cent) said they would not be willing to pay a broker a fee, while a whopping 96.5 per cent of broker clients said they wouldn’t be willing to pay $2,000 for the service.

Providing decision-makers with ‘up-to-date’ information

Speaking to The Adviser, FBAA managing director Peter White said that the association had commissioned the research for its submission to help provide up-to-date evidence on the “key issues surrounding a review of broker remuneration” given that the majority of research undertaken by ASIC and different commissions had been undertaken more than three years ago.

Mr White said that the FBAA had initially commissioned the Client Experience Report to help identify “any issues that needed to be sorted out” around perceptions of broker remuneration and conflicts of interest, but noted that the survey “didn’t play out that way; it was an absolutely glowing report”.

“The data proves that both consumers and lenders benefit from the important role finance brokers play, and are happy with the current remuneration structure… there’s actually nothing here to fix because the model is not broken,” Mr White said.

While he added that he believed broker remuneration could be improved by removing clawback agreements where the reason for a consumer refinancing or discharging the loan was unrelated to the broker’s conduct, he said that he believed the changes the industry has already gone through since the royal commission took place have been sufficient to “iron out any perceptions around conflicts of interest”.

Mr White particularly noted that brokers are now operating under a new regulatory environment, which includes a new best interests duty obligation, record-keeping obligations, breach reporting, banning conflicted remuneration and mandatory background checking.

“There is no data, no rationale anywhere that shows it’s viable to change the structure of broker remuneration in Australia and especially not going for a fee for service,” the FBAA managing director told The Adviser.

“If you try and force borrowers to pay it’s going to bring in problems... the people that would suffer the most will be the borrowers, families, home buyers, small business owners. 

“Not to mention the 19,683 brokers in Australia relying on these commissions to survive.”

According to Mr White, the FBAA submission also includes broker research, which demonstrates that 90 per cent of brokers believe trail commission income is important for their survival, and that almost two-thirds of brokers said trail commission was their only source of income at some time during COVID-19.

The FBAA has now sent the submission to politicians in both government and the opposition, as well as to regulators, the Council of Financial Regulators, the competition watchdog, banking associations and other “relevant decision-makers” to help provide “up-to-date evidence” on attitudes to broker remuneration ahead of the 2022 broker remuneration review.

The review is set to be undertaken by the Council of Financial Regulators and the ACCC (as announced by Treasurer Josh Frydenberg in 2019) and will consider the impact of the best interests duty, the possible ramifications of removing trail, as well as the feasibility of continuing upfront commission payments.

Both the abolition of trail and upfront commissions were recommended by commissioner Kenneth Hayne in his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Mr White said that the association would be meeting with decision-makers on both sides of the house in the coming weeks to “ensure everyone on both sides of the divide knows about this”, given the federal election in 2022. 

“We’re putting our case forward in our submission that there is no case for tearing down a structure that is working extremely well for consumers and brokers, alike,” Mr White said.

[Related: Broking industry poll launches ahead of federal election]