Industry celebrates having certainty over remuneration

While the Morrison government had initially said in its official response to the banking royal commission final report in 2019 that it would ban trail commission payments for new mortgages from 1 July 2020, it later moved away from this position.

At first, it said it would delay such an abolition and instead review broker commissions in 2022, which Treasurer Josh Frydenberg had suggested to Momentum Media would take place in the “back half” of the year.

However, on the weekend (19 March) it was confirmed that this review would not be proceeding and that the government does not intend to make further changes to mortgage broker remuneration regulations at this time.

The move came after widespread engagement from members of industry – including associations, aggregators, brokerages, brokers and even lenders (particularly those dependent on brokers for distribution).

The new position has provided certainty to the broking industry given that the Labor Party has also confirmed that they would not be looking to change broker remuneration.

As such, regardless of whether the Liberal/Coalition or Labor Party wins the upcoming federal election, broker remuneration will remain the same as it is currently. The treatment of broker remuneration by each of the two political sides had been a major voting consideration for many in the broking industry, according to a recent Momentum Intelligence survey.

Several leaders of the broking industry have applauded the conclusion of this uncertain era.

Speaking following a meeting with Assistant Treasurer Michael Sukkar at the end of last week, the chief executive of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, said the government decision was the “right decision”.

‘The current system of remuneration is the best for consumers’: FBAA

Similarly, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White, has welcomed the move, highlighting the engagement that it had been having with “regulators, MPs and other key stakeholders” to inform them of the “facts about our industry”.

This included the FBAA’s 161-page submission to government and regulatory bodies outlining the value of the broker channel and client attitudes to remuneration, which revealed that 93.8 per cent of broker clients had no concern about current commission structures. 

The MD of the FBAA said he believed that there had “never been such a comprehensive effort to engage with both the government and opposition”, adding that the association would “continue [its] dialogue to ensure that no future government revisits a review of this sort”.

“While there has been no formal review process for some time, the industry has been scrutinised enough and has proven to the government that the current system of remuneration is the best for consumers and the industry,” he said. 

“[O]ur industry has already implemented many initiatives that remove conflicted remuneration and ensure we act in the best interests of the borrowers… 

“In the end, a further review was not needed.” 

‘Both parties are aware of the vital importance of brokers’: AFG 

The CEO of aggregator Australian Finance Group (AFG), David Bailey, applauded the move from federal government, suggesting that the move was “positive news not only for AFG brokers but also the wider mortgage broking industry and all Australian consumers who rely on their service”.

“The mortgage broking industry offers convenience, choice, and access to credit. By driving competition, mortgage brokers keep prices low for all borrowers,” Mr Bailey said. 

He flagged that the industry had been undertaking “significant self-regulatory initiatives” in recent years, working with regulators and government to roll out a series of proactive reforms, as well as embracing legislated changes such as the best interests duty, reforms to conflicted remuneration and improvements to information sharing and reporting of misconduct, including a reference checking protocol, a breach reporting regime, and improved processes around notification and remediation of misconduct for consumers. 

“These reforms – alongside brokers’ dedication to customers – have produced incredible data on positive customer outcomes, reinforcing that mortgage brokers support competition that is critical to the Australian economy,” the AFG CEO said.

Mr Bailey concluded: “The recognition provided... and the recent affirmation from the federal Opposition that there is no need to change the existing remuneration structure, show that both parties are aware of the vital importance of the viability of the thousands of small business operators working as mortgage brokers drive a competitive lending market and deliver choice and convenience for Australian consumers.” 

Decision 'reflects the industry’s dedication to deliver results while driving competition': Lendi Group

Speaking on behalf of the Lendi Group, group CEO David Hyman commented: “The federal government’s decision to halt a review of broker commissions is welcome news for the 1,200+ brokers across the Lendi Group along with the entire mortgage broking industry.

"Brokers, industry-wide, have been working hard to provide excellent outcomes and serve the best interests of their customers, and this decision reflects the industry’s dedication to deliver results while driving competition in the market."

He highlighted that as well as industry-wide changes, the Lendi Group had been working to use technology to "remove conflicts, hardwire the best interests duty into our DNA and to codify compliance on the Lendi platform", suggesting that this helps make its brokers "even more indispensable to customers".

"As we roll out the platform technology across Aussie’s network of brokers, we’ll continue to deliver great outcomes to our customers, brokers, and the industry as a whole,” he said. 

‘Great news for customers’: Loan Market Group 

The executive chairman of the Loan Market Group, Sam White, highlighted that – as well as industry engagement – the regulators and Treasury would have also gained “so much confidence the desired customer outcomes were being met” due to the fact that two-thirds of borrowers now use mortgage brokers but that less than 0.4 per cent of financial complaints relate to the industry.

“While we aim for no complaints, this shows the quality of service you continue to provide to your clients,” he said. 

“This increase in market share, combined with the incredibly small number of complaints and incredibly high customer NPS gave the regulators and Treasury so much confidence the desired customer outcomes were being met that they concluded a formal review was unnecessary.  

“This is great news for customers who will be able to continue to use the services of brokers without having to put their hands in their pockets every time they want advice.

“This decision means that you can continue to focus on looking after your clients and investing in great customer service without worrying about how remuneration may change in the future.”

[Related: Government drops broker rem review]