Freedom of choice in danger of extinction

Customers would be left worse off with the Royal Commission’s recommendation to move to a borrowers-pay remuneration structure, according to mortgage broking aggregator Connective.

In a statement, Connective director Mark Haron said the proposal will limit access to brokers, taking away the freedom of choice to millions of Australians.   

Choice matters for Australian home buyers and it has to be protected; choice fuels competition and competition should keep all the players honest and accountable,” Haron said.

“Removing access to choice and competition in the home lending sector is simply handing more power back to the major banks, which is exactly what Australians don’t need.”

Connective unequivocally dismisses calls for a borrower-pay model, while unequivocally supports the need to challenge the broking industry to strive for better customer outcomes.  

No fixing required
According to Haron, the current remuneration model is “not fundamentally broken”. While the structure has room for improvement, it has been found free of systematic misconduct and not needing any substantial reform by multiple reviews conducted over recent years.   

Many Australians only get to access a wide choice of lenders via mortgage brokers. Net margin of banks fell by more than 3% over the past 30 years due to the substantial contribution of the broking channel.    

“Changing how mortgage brokers are paid will do more to reduce competition, than it will to address any misconduct. The Royal Commission was set-up to address misconduct, not to tamper with competition,” Haron said.

Devil in the detail
Connective believes that in order to ensure good customer outcomes, mortgage brokers should focus not just on their remuneration model, but on their obligation to put customers first.

“Examining the culture and conduct of the entire financial services sector was the right thing to do. However, we also think it’s critical to acknowledge the work already done to improve customer outcomes in the mortgage broking sector,” Haron said.

Connective has been working with the Combined Industry Forum to develop meaningful reforms, including the implementation of a ‘Customer First Duty’.

Since Connective has always advocated a ‘customer first’ movement, it fundamentally supports the commission’s recommendation for a Best Interest Duty. “The devil is in the detail, however. And we are particularly interested to see how the Best Interest Duty will extend to all lenders, including the banks. Improving customer outcomes requires a level playing field,” Haron said.

Instead of recommending sweeping changes for the sake of change in every financial services sector, Connective suggests that existing laws and CIF reforms should be given a chance first to have an impact.

“The unintended consequences of Hayne’s recommendations in relation to the mortgage broking industry is reducing competition and handing yet another free kick to the big banks. Competition needs to be fiercely protected now more than ever, reducing choice is not the answer,” Haron said.