‘Leave broking alone’: Shadow Assistant Treasurer

This is because of how the industry, “...came together and unified and engaged with both policy makers and politicians around the issues that were facing them.”

Speaking exclusively to The Adviser during a recent Momentum Media podcast and reflecting on the broking industry since the Royal Commission, Member for Fadden Mr Robert said: “I think the mortgage broker industry is in a great space, in a really good space…”

“[I’m] super happy with where it is and where it's going, and everyone just needs to leave it alone, frankly, because it's doing a cracker of a job,” he explained, in the context that the “…advice industry is going through a massive revolution.”

“When [The Royal Commission] started, there were many of us uncomfortable that mortgage broking had been included in it,” he explained.

The Royal Commission was established on 14 December 2017 and conducted by High Court Judge the Honourable Kenneth Madison Hayne AC QC. He submitted his final report on 1 February 2019, which in turn was tabled in the Australian Parliament on 4 February 2019.

Commissioner Hayne put forward 76 recommendations to radically change the financial system. Among them included wholesale changes to the mortgage broking industry – namely ending trail commissions and moving the industry to a customer-paid up-front fee model.

Mr Robert vividly recalled the complexities and perplexities of how and why the broking industry was affected by the Commission – a time he described as being “pretty nuts” - and where it stands now post-COVID.

“If you compare the census details on data from 2016 through to 2021, you'll see the average household wealth has substantially increased. Australians are in a better place in terms of their lifestyles, in terms of their money, in terms of their individual balance sheets and accounts.”

“And this is where the financial services industry is crucial in terms of providing advice that those Australians need to deal with the higher levels of income that they've got.

“But at the same time, we've seen some tumultuous periods, starting with [the] Hayne Royal Commission that has seen financial brokers in terms of numbers decline in the industry, [but] mortgage brokers remain steady, which is pretty good. Insurance has been up and down as well.

“There's been some big changes, but the industry has actually provided, I think, a very good service at a very difficult time.”

A unified front in tough times

Mr Robert commented that he was impressed by how the broking industry ‘came together’ at this time of adversity, and how it is a model of inspiration for other such industries.

“The broking industry didn't believe that Hayne would recommend an end to trail commissions,” Mr Robert recalled.

“That came as … a great surprise. The industry engaged well, supported well, presented well, and … the two major associations [FBAA and MFAA] were superb and working together.

“Peter White [FBAA] and I probably had the most engagement.

“There were some of the great industry professionals - John Kolenda from Finsure; James Green, previously of Volt - who were extraordinarily helpful in advising me, as assistant treasurer, on steps and where to go and what to do and what mattered, and putting together roundtables and engagement that was important.

“But when that report came out … and 76 recommendations...

“I think 1.3 was the end of trail, moved to an upfront, ‘double it’, consumer-pays model. That was quite a surprise to everyone.

“I didn't think Hayne would move in this direction because I didn't believe mortgage broking should have been part of it.

“The nation is outraged at what they've heard in terms of general banking … [and] has just dumped everyone in a heap and hasn't separated out insurance, mortgage broking, financial services, superannuation, banking services - hasn't separated any of that at all.

“There was enormous conjecture and discussion over … 1.3, the ending of mortgage commission trails.

“I was against it. The treasurer was going, ‘This is probably not the right thing at all’.

The devastation of an industry?

As to why recommendation 1.3 wasn’t adopted, Mr Robert said the clincher for him was the feedback from an assembly of key banking influencers and aficionados.

“I pulled together pretty much all of the major bank CEOs, the seniors and, of course, the mid-tiers … in my office, probably the only time they all got together.”

“I had to get the ACCC on the line to ensure that this many banking CEOs with the minister, the assistant treasurer responsible, could not … seem to be colluding in any way.

“I wanted to hear from them all about their engagement with mortgage broking and what it would mean.

“And one substantial CEO said to me: "Minister, 80 per cent of our mortgage originations come from brokers - 80 per cent!

“You will wipe us out overnight. You will wipe out competition."

“The mid-tier banks all went, ‘The vast majority of our originations come from mortgage broking’.

“It's the only way we can compete because we don't have a large branch network.

“It could be the single biggest anti-competitive measure that may be on the table,” they explained.

“It was quite an extraordinary statement.

According to Mr Robert, there was a firm view the Royal Commission recommendations, “…would see the destruction of mortgage broking as we know it.”

“We'd now decided, ‘no, we're not going to go with getting rid of trail for mortgage broking; this would be a deleterious move.”

At the end of three years since those deliberations, before the last election, ‘continuance of trail’ was clearly working exceptionally well, he explained.

“The mortgage broking industry had done a great job. And the decision to scrap this review was a fairly easy one for us all to make.”

[Related: https://www.theadviser.com.au/broker/43436-in-focus-how-and-why-the-morrison-government-changed-its-mind-on-broker-commissions]