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Broker remuneration needs further changes, including removing the “cliff nature” of clawback, to ensure it is “fairer for all”, the MFAA chief executive has told members.
On Tuesday (14 February), the Mortgage & Finance Association of Australia (MFAA) held its Looking ahead — 2023 and beyond professional development (PD) day in Sydney.
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In her keynote address to association members, the CEO of the MFAA, Anja Pannek, outlined the priorities and areas of focus for the finance and broking association in the year ahead.
Among them, she said, was “ensuring that we have a sustainable remuneration model in this industry” and advocating “further changes to ensure that the [broker] remuneration model is fairer for all”.
While acknowledging that the government’s move to scrap the upcoming remuneration review was welcome, she added that more could still be done to improve the model.
She explained: “The first of those is clawback; where I see the opportunity to remove the ‘cliff’ nature of clawback to share the unfortunate situation where, if there is an early discharge on your behalf, between the broker and the lender. It should be more linear in nature.”
The clawback of broker commissions has been a major point of contention in the broking industry recently, as record-high volumes of refinancing have led to many brokers experiencing commission clawbacks and recently resulted in the Assistant Treasurer Stephen Jones MP asking for calculations around the costings of clawbacks (to ensure lenders aren’t profiting from them).
The other area of remuneration focus for the MFAA is the changing role of cashback offers and how they are becoming increasingly “detrimental to the elements of how [brokers] work with clients”.
She continued: “My view on cashbacks is that we may have lost our way, a little bit, on these. If we reflect, they were originally introduced for a customer to cover the cost of refinancing. But what we now see is that they are used to drive competition and refinancing overall.
“My other observation on cashbacks overall is that … if you actually work out the numbers on, say a $4,000 cashback on a half a million dollar loan, and assume that loan is on book for about five years; that’s about 16 basis points of margin that somehow has to be recouped over the [life] of that loan. So there is a cost that you’re putting into the system.
“Lenders are driven by balance sheet growth, but ultimately they’re also driven by returns. So, I see a strong case for logical pricing to come back into the market and, in some elements of how cash back and clawback operate together [needs] to be addressed by market participants.”
Ms Pannek said a separate challenge that brokers had been facing when refinancing was around discharges. This was particularly important given the “disproportionate percentage of borrowers that are on fixed rates” and the large number that is set to come off this year.
She elaborated: “We’re keeping a very close watch on lender retention and service levels as we head through this year … We are again impressing upon the government (and a number of other key stakeholders) a number of recommendations, which we highly supported in the Home Loan Price Inquiry.
“These include things like the 10-day turnaround time when it comes to refinance, and opportunities to reduce the friction in the discharge process, for example with a standardization of the discharge form.
“Our approach on advocacy is outcome focused, it’s not necessarily about just grabbing those big headlines. It’s about delivering results for you.”
Other areas of focus for the MFAA in 2023 include:
- Meeting with consumer groups, AFCA, and regulators to advocate for brokers
- Pushing for regulation of the buy now, pay later industry
- Engaging with government on a budget ‘wishlist’ for the industry
- Helping brokers improve cyber security
- Overhauling broker mentorship
[Related: Lending competition tops 2023/24 budget requests: MFAA]
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