The tabling of the best interests duty in Parliament will spur the next wave of growth in the broker industry, believes Loan Market executive chairman Sam White.
In the royal commission final report, Commissioner Hayne recommended a mortgage broker best interest duty be implemented. After a consultation which ended on 4 October, the legislation was introduced yesterday (November 28).
White said he believes broker market share will grow to 70% as customers seek out brokers who act in their best interest, rather than a branch manager who works in the interest of the bank.
So, what does the legislation include?
The Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019, says the mortgage broker must act in the best interests of the consumer in relation to credit assistance.
It outlines that if the broker is aware of, or “reasonably ought to know of”, a conflict between the interests of the consumer and the interests of the broker or their associate or representative, the broker must give priority to the consumer.
The legislation will apply to any credit assistance on or after 1 July 2020.
In reading the bill in Parliament, Treasurer Josh Frydenberg added that in line with Commissioner Hayne’s recommendations, the duty would apply to the provision of consumer credit assistance and not business lending.
The same bill also includes detail on the ban on conflicted remuneration. It says that any monetary benefit given to a broker which could influence the credit assistance provided to the customer, or affects how the broker acts, should not be provided or accepted. This also comes into play on 1 July 2020.
“The government is also reforming mortgage broker remuneration, and the bill provides for a regulation making power to this end,” Frydenberg said.
“The regulations will require the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount; ban campaign and volume-based commissions and payments; and cap soft dollar benefits.”
Supporting brokers through Best Interests Duty
White says he knows that the large majority of mortgage brokers are already acting in the customer’s best interests.
“However, we see that the shift for brokers will be centred around having access to the right technology that supports a broker's process and how a broker can prove they've met their Best Interests Duty for each and every client, each and every time,” he adds.
"Now more than ever Loan Market is confident that we have the platform - MyCRM - to help our brokers navigate Best Interests Duty.
"Loan Market is well underway in building a process for our brokers to keep them safe during this time of change and look forward to sharing the prototype and gaining valuable feedback from our brokers before we go live on July 1.
“Loan Market will continue to work with ASIC, the MFAA and other industry leaders in understanding how the legislation will be interpreted and a framework developed.
“But for now I think that brokers should have a very well-deserved break over the holidays, knowing that their aggregator is working to make the transition more accessible for them with system changes and training.”