Connective’s group legal counsel Daniel Oh says he’s concerned by Commissioner Hayne’s statement that brokers’ remuneration structure “has been an important contributor to misconduct” and questions whether Hayne thoroughly understood and considered the work brokers do and the value they provide.
“I understand that the Commissioner was really focused on creating a narrative around misconduct, inactions and failings that weren’t meeting community standards and expectations. A lot of the case studies raised were terrible, but I just feel that mortgage brokers, unfortunately, have been a bit caught up in this dogged pursuit to further this narrative that greed and remuneration-driven behaviour have caused all this misconduct,” Oh told MPA.
Oh said he felt the commission “relied on selective bits of information to further broaden this narrative”, taking excerpts from the ASIC remuneration review about brokers writing higher LVR and more interest-only loans without providing context around the types of customers (largely first homebuyers and investors) and complex situations that brokers often have to deal with.
“He’s pulling out these references and saying, ‘Bad, bad, bad’, but I question whether he has deeply examined the context in which this data arose,” Oh said.
ASIC’s 2017 remuneration review, which was the largest data gathering exercise the regulator had ever conducted, found that while the standard commission model could create the potential for conflicts of interest, it did not need to be scrapped altogether.
Treasury also took this tenor in its recent submission to the royal commission and didn’t identify any major problems with how brokers are paid. Both were supportive of the industry making refinements through the Combined Industry Forum.
As recommended by the CIF, volume-based incentives were eliminated by the end of last year. The CIF is also making progress on adjusting upfront commission so it’s based on the facility drawn down and utilised, net of offset, which Oh thinks will deal with a lot of the concerns around value-based remuneration.
He said it would be more effective for the industry to implement the changes that ASIC suggested and then collect more data in a couple years’ time to see if things had improved, rather than overhauling the system.
When asked what he thought Hayne might recommend in his final report in February, Oh said: “I’ve got a whole lot of nervousness, I must admit, and I’m really concerned. The end game that I hope Hayne gets to … is that he doesn’t actually recommend any changes at this point, but that he requires regulators and industry to keep an eye on this and to increase the scrutiny.”
“I truly believe that regulators, lenders and aggregators are really going to have to up their game in supervision stakes and hopefully that will appease Hayne in that regard.”
Oh said Connective will point out in its next submission to the royal commission that if Hayne does recommend changing the commission model, there will be a number of unintended consequences that will negatively impact brokers and the industry, and which, in turn, will hurt competition and consumers.