David Bailey: A future unknown

The future of the industry is full of unknowns, but AFG's CEO is confident brokers will prevail

AFG may be a publicly listed company with significant clout in the broking and finance industry, but its CEO, David Bailey, admits that he’s as much in the dark as everyone else when it comes to the long-term consequences of the royal commission.

No matter how well placed you are, no one knows what’s to come.

Bailey understands brokers’ current state of mind, but he is reassured by the huge amount of support behind the channel.

“How would anyone feel if their livelihood was threatened? [Brokers are] hurt, they’re confused, and it’s a distraction from what they’re trying to achieve,” he says.

“They will all say that every customer they talk to gets a good outcome because that’s what they do. … And it’s the role of organisations like AFG to look out for them to make sure that they continue.”

The most important thing brokers can do as they wait for the royal commission’s recommendations is put the customer’s needs front and centre, Bailey says.

“How would anyone feel if their livelihood was threatened? [Brokers are] hurt, they’re confused, and it’s a distraction from what they’re trying to achieve,” he says.

“Unfortunately, the royal commission has come at the same time as the Productivity Commission and the ASIC review, so it feels as if brokers are in the spotlight.

“Our position is, at 55% of all fl ow of a major asset class of the Australian economy, which affects so many consumers, [the sector] should have regulatory oversight. We should embrace that because it means brokers are successful.”

Bailey thinks most customers accept that brokers need to be paid in a manner that recognises the time and eff ort they put towards finding the right loan for each customer. “It’s a service that allows access to all Australians, irrespective of income level.”

On commissions

While Bailey doesn’t think the current remuneration model is conflicted, “I would also argue that it has the appearance of being conflicted. To that end, we need to look to respond”.

With the Combined Industry Forum’s proposed reforms, together with increased regulatory oversight across the board, Bailey believes brokers’ commission structure will prove sustainable and aligned with customer interests.

“If a broker gives a poor outcome to a consumer, then it’s self-defeating to their own business model and their ability to generate future leads.”

Bailey doesn’t know if fee-for-service will be an eventuality.

“AFG’s position is that the model’s not broken and the changes being implemented [by the CIF] … will achieve the balance,” he says.

AFG wrote in its response to the Productivity Commission that the four major banks would be the only beneficiaries of such a drastic move.

“The presence of the mortgage broking channel is one of the few drivers of competitive tension in the Australian lending market. A consumer dealing directly with a lender has limited negotiating power or knowledge of the interest rates and lending criteria offered by competitors,” the submission said.

However, the aggregator also wrote that trail incentives should be tweaked to eliminate gradual increases over time.

“The flat commission structure is important because, if you’re having an ongoing conversation with the client, you need to make sure the loan is still fi t for purpose. Just as an increased loan amount may represent a conflict of interest, potentially a stepped-up trail represents a conflict of interest as well,” Bailey says.

Backing brokers

At MPA’s Aggregators Roundtable in May, a broker asked what aggregators were doing to stand up for them.

Bailey says AFG has been very vocal. For every major review, AFG has contributed a response.

“We’ve been to Canberra, we’ve spoken to politicians, we’ve organised meetings with politicians in their local ridings, we’ve engaged with the regulators on an ongoing basis. And this is outside of being actively involved in the CIF,” he says.

“We are not an organisation that jumps up and trumps up every time we go talk to a politician, but the level of activity within our organisation on advocacy continues to be high.”

 During the MPA roundtable, some brokers submitted questions as to why aggregators hadn’t come together to launch a publicity campaign supporting the third party channel.

Bailey explains that being champions of the industry doesn’t always call for a public display. It’s about choosing when and how to get your message across in the most powerful way.

 “It’s an emotional time, but there have been no decisions,” he says. “There’s no call to action yet, so yes, you should be saying things … at the right time. But at the end of the day it’s about choosing the time to speak up and when and where your voice will be best heard.”

What should brokers do now?

As regulatory oversight increases, brokers need to focus on ongoing training, which is why AFG has rolled out Learn, an extensive suite of courses, training events and professional development opportunities available through its broker portal. Its new Pipeline workflow management tool will help brokers juggle their daily requirements and tasks while keeping better track of customers.

“Put the customer front and centre and I think that won’t be lost on the regulators at the end of the day. The ramifi cations of destroying the broker channel are a bigger problem”

The aggregator’s new AFG Business platform and accompanying boot camp teaches residential mortgage brokers how to diversify into commercial finance to leverage new income streams.

And its recent acquisition of 30% of Thinktank will allow it to distribute a white label commercial property product through its broking network.

While Bailey expects the regulatory uncertainty to continue for at least another year, he says brokers should remain focused on helping their clients, and trust that industry bodies and organisations like AFG, which have aligned interests with brokers, will be working hard to promote and defend the industry.

“Put the customer front and centre and I think that won’t be lost on the regulators at the end of the day. The ramifications of destroying the broker channel are a bigger problem.”