Ex-MFAA CEO Siobhan Hayden, now COO of HashChing, gives her interpretation of the ASIC and Sedgwick Reviews and what it means for brokers
When ASIC released its Broker Remuneration Review on 16 March 2017, there was a collective sigh of relief in the broker ecosystem. The findings were underpinned by genuine industry engagement, strong analysis and a sincere level of rigour.
ASIC acknowledged that the current remuneration for brokers offered protection to consumers and ensured there was no substantial lessening of competition. This is particularly noteworthy considering the drive to remove ‘commission’ pay structures from related industries.
Our composure, however, was short-lived, with Stephen Sedgwick AO releasing the Retail Banking Remuneration Review on the 19 April. He dedicated no less than three of his 21 recommendations to mortgage brokers.
To consider the recommendations, it is notable to remember that the review was commissioned by the ABA as part of its ‘6-point reform plan’ exactly a year ago. This was in the immediate aftermath of the Federal Opposition Leader Bill Shorten announcing on the 8th of April 2016 that if elected, he would “hold a royal commission into misconduct in the banking and financial services industry”.
"ASIC’s concerns pertaining to broker remuneration being linked to loan size could be easily mitigated by extending our existing Client Fact Find"
Many have viewed this Review as reactionary, designed to arrest any further government examination. Frankly, remedying the existing banking culture is a considerable challenge in and of itself. Sedgwick’s Review adds further complication by including recommendations to change mortgage broker remuneration, which merely stretches the exhaustive remit of lenders.
Mortgage broker commissions have always been structured to ensure brokers provide professional services and assistance to customers for the life of the loan. ASIC’s concerns pertaining to broker remuneration being linked to loan size could be easily mitigated by extending our existing Client Fact Find.
Brokers could capture information on what the customer initially requested when they met, what loan they signed, and reasons for any difference along with the client’s signature. This would surely mitigate any issues ASIC may have about broker remuneration conflict.
Disclosure of vertical ownership structures, where they exist within the industry, will also provide additional transparency to consumers and therefore additional benefit.
The proposal to remove Volume Based Incentives (in the form of additional commission paid by lenders to aggregators) will reduce the available funds that aggregators can use for ongoing professional development of brokers. It would have been ideal to see ASIC recommend clear measures for the use of these funds to ensure they benefit all brokers within the aggregator, rather than recommend their removal.
If VBIs are to go – bearing in mind they were introduced to counteract the reduction of lender upfront and trail commissions some 10 years ago, from .75 to .65 and .25 to .15 respectively – I am left wondering whether their removal will result in broker commissions being increased. It is clearly evidenced that through the introduction of NCCP, brokers now do far more work for every client, and yet their remuneration has reduced.
In short ASIC’s Review, which Sedgwick seems to have simply read and reiterated, should be our focus. The industry needs to examine the findings and together propose solutions which ensure good outcomes for consumers.
Siobhan Hayden is COO of online broker marketplace HashChing. Previously she was CEO of the MFAA, including when the ASIC and Sedgwick Reviews were announced and researched and has worked with brokers, industry stakeholders, regulators and the Government.