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The government has today released the long-awaited remuneration review into broker commissions for consultation.
Minister for Revenue and Financial Services Kelly O’Dwyer was briefed by the Australian Securities & Investments Commission (ASIC) on its recommendations for mortgage broker remuneration structures on Wednesday (15 March).
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The review was initiated following a request by the Commonwealth government in November 2015 for ASIC to review the mortgage broking market and determine the effect that current remuneration structures have on the quality of consumer outcomes.
The full report has been released today for public consultation, and makes 13 separate findings:
- The standard commission model is almost universal
- Brokers are paid bonus commissions and lenders’ staff are paid bonus payments
- Soft dollar benefits are widely used in the broker channel
- Consumers who use brokers are different to consumers who go directly to lenders
- Loans obtained through brokers are larger, and more likely to be interest-only
- Interest rates are not different between distribution channels
- Lenders and brokers did not make sufficient inquiries into consumers’ expenses
- For some lenders, loans provided through brokers are more likely to go into arrears than loans provided directly to consumers
- Competition in the home loan market is affected by ownership and the limited ability of some lenders to access and remunerate brokers
- Lenders provided bigger loan discounts for new loans in 2015 compared with 2012
- Those who merely refer consumers to lenders are paid almost as much as brokers, despite doing much less than brokers
- Governance and oversight need to be improved
- There are significant issues with the availability and quality of key data from industry
However, Ms O'Dwyer's office has revealed that the review found that some aspects of the current mortgage broker remuneration and ownership structures could create a conflict of interest that may contribute to poor consumer outcomes.
The review outlines a number of proposals for industry aimed at improving consumer outcomes, including:
• improving the standard commission model for mortgage brokers;
• moving away from bonus commissions and soft-dollar benefits;
• increasing the disclosure of mortgage broker ownership structures; and
• improving the oversight of mortgage brokers by lenders and aggregators.
The minister today commented: “It is important that industry have the opportunity to fully consider ASIC’s report and provide feedback to Treasury as part of a three-month consultation process."
Interested parties are encouraged to make a submission on the review by 30 June 2017.
[Related: Flex commissions to be banned by ASIC]
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