What’s the most likely outcome of ASIC’s remuneration review?

We ask the industry what is most likely to happen after ASIC concludes its remuneration review.

John Flavell
Mortgage Choice

While the trail commission is unlikely to be banned, all parties associated with the mortgage industry will be reviewed, and we believe this is an appropriate line of enquiry. Borrowers have the right to know what their brokers are being paid by their lenders, and how that level of remuneration may differ from lender to lender.

At Mortgage Choice, we already have a similar policy in place for our brokers and believe that regardless of the outcome this will only strengthen the industry. We support the need for transparency when it comes to commissions, especially when you now consider that mortgage brokers are responsible for more than 53% of all loans written in Australia.

We look forward to the results of the review and see this as a positive opportunity for both brokers and consumers, highlighting the tremendous job this industry does for consumers each and every day.

Michael Russell
Managing director

The most likely outcome is that we won’t learn anything this year!

The sheer volume of data requested is almost certain to breach the timelines announced by ASIC to collate, interpret and provide their initial findings and recommendations. When they do, I have no doubt that mortgage brokers will be found to be operating in the best interests of their clients, with no evidence of any correlation between client lender recommendations and lender commissions.

Notwithstanding this outcome, I am anticipating a raft of additional regulation designed to provide a greater level of reforms consistency across retail financial services. This will most likely manifest in changes in lender volume bonuses and soft dollar incentives. I don’t, however, foresee any change to the overall remuneration structure of mortgage broking commissions, which continues to serve consumers well and provide for a healthy and highly competitive home loan market.

Martin North
Digital Finance Analytics

ASIC’s ‘behind closed doors’ remuneration review will probably focus on the various ‘soft commissions’, including volume discounts and other incentives such as bonus payments, broker awards and prizes, rather than addressing head-on the question of whether commissions should be paid at all. They will also most likely insist on better disclosure of commissions at the point of first advice so consumers can be fully informed as to whether they are receiving cross-market advice, or a narrower set of possible options based on the broker-lender alignment and the various incentives in play. The current low bar of ‘not unsuitable’ advice will likely remain, rather than moving to best advice.

This is despite the fact that in the UK, for example, broker commissions have been banned in favour of a fee-for-service model. The regulator concluded there were too many inherent conflicts when advisers were paid on commission, and no tweaking of the model, or enhanced disclosures, could solve this contention.
Add your comment
  • Edward15/03/2017 4:15:41 PM

    I think brokers should get the same outcome that us financial advisors got. All commissions are banned in lieu of a fee-for-service model and if the broker want's to continue receiving trail payments after the first 12 months then they have to get the customer's consent every 2 years with an Opt-In form. Then they have to send a customer a fee disclosure statement every 12 months telling the customer what services they are/were/will be entitled to in addition to their bi-annual home loan statement and on top of all that force every broker to complete a 3-year university degree at their own expense of $30,000. Then we will see how many brokers are left in the industry, all in the name of "better serving the consumer". All this should weed out the cowboys right?

  • Simon Nesbit16/11/2016 12:45:06 PM

    A very simple solution - A mandated, set rate of commission paid by all lenders. No bonuses, no volume requirements, etc. A simple % of loan value is paid. No upfront or hidden fees, clear and honest declaration of income.

    Even better, substantially increase rate of trail (at expense/elimination of upfront), and more brokers will do the right thing by their client by managing the loans effectively, repricing with existing lender - eliminates customer churn, assessment staff wastage and processing of short-term, loss-making loans. Everyone wins.

  • Simon Nesbit17/11/2016 9:03:06 AM

    Re: NIM (Concerned) -

    I agree, however this balance would be far more easily "managed" cost IMO, than that of acquisition and processing of new loans (only to lose them 12-18 months later).

    I also note a large percentage of my new potential clients (~20% are seeking a $ for $ refinance only) is due to current lender incompetence and poor service.

    Over the last twelve months I have seen significant improvement in the existing lender's ability to reprice existing customers upon request - even those who are our clients in name only. We receive no direct payment or reward for this service (as in many/most cases we did not write original loan), however the customer obtains a good outcome (and will likely become our client in the future when their circumstances change).

    We operate in a small community where reputation is king - and hold such significant market share that we are able to provide this service to the public - I understand just how "lucky" we are to be in this position, however if incomes were based more on FUM and less on new business then all brokers could provide the same level of service/convenience rather than the current "churn" experienced by all, and often to the frustration of customer.

  • Concerned16/11/2016 8:39:14 PM

    Let's be careful what we wish for. Added trail will place larger pressure on NIM

  • Tom16/11/2016 7:17:54 PM

    Agree with the ramped trail. However I still think the whole thing is a waste of time. Broker commission are fair and at no detriment to the client. I just hope some government person who's never written a loan in his life makes a dumb decision and send us all broke.


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