David Bailey: Because you're worth it

As commission uncertainty escalates, AFG’s CEO explains how his aggregator is demonstrating the value of brokers to regulators and the general public

David Bailey: Because you're worth it
As commission uncertainty escalates, AFG’s CEO, David Bailey, explains how his aggregator is demonstrating the value of brokers to regulators and the general public

AFG has been involved in the conversation about mortgage broker remuneration since the government first announced the ASIC review in November 2015. Following an unprecedented data collection process, ASIC’s long-awaited Review of Mortgage Broker Remuneration report recognised the important role that mortgage brokers could play in promoting good consumer outcomes and strong competition in the home loan market. The regulator identified some areas in which the industry could be strengthened, but it did not recommend wholesale change.

ASIC has stated that the aims of the proposals made in the report are to “strengthen the positive contribution that brokers provide in this sector” while enhancing (a) consumer outcomes and competition; (b) the operation of the home loan market more generally; and (c) the trust and confidence that consumers have in brokers.

AFG supports these aims and believes it is incumbent upon the industry as a whole to respond to the regulatory process. We will continue to play an active role in the ongoing process.

The ABA report
AFG has previously raised concerns about the risk of the ABA-sponsored Retail Banking Remuneration Review drawing false conclusions about broker remuneration due to the limited and one-sided nature of the investigations that were undertaken. We have concerns that the focus on the positive outcomes of the ASIC broker remuneration review is being lost in the attention being paid to the ABA report, which we continue to assert is a submission by just one interest group in the mortgage industry.

Commission model
It is important to remember that the existing commission model for mortgage brokers is not broken. The existing model means that all Australian borrowers have the option of using a broker or dealing directly with a lender. Australian consumers have voted with their feet and embraced the mortgage broking industry. AFG has 45 lenders on its panel, with more than 30% of borrowings going to lenders other than the four majors. The winner of this increased competition is the consumer, and this point should be front and centre as we debate the commission model as part of the next phase of the ASIC review process.

AFG believes any changes to the commission model need to be carefully considered to ensure that consumers with different needs are not unintentionally disadvantaged with a ‘one size fits all’ approach. There is no one-size-fits-all lending solution. And there is no one-size-fits-all remuneration model. Informed consideration must be given to additional metrics that may help to determine fair remuneration for the work done and skill exercised by the broker.

What can brokers do?
Brokers provide a vital service in a sector that is performing well and is already well regulated.

Our message to the politicians and regulators will continue to be that mortgage brokers:
  • work at times and places that suit customers
  • are open for business when branches are not
  • pay taxes
  • speak many languages and are a part of many communities that would otherwise not have an understanding of the way lending works in this country
  • are a highly productive variable cost base for lenders
  • drive competition
  • spend a considerable amount of our time educating potential clients at no cost to them
  • for many rural and regional Australians, provide the only lending assistance available in their local communities
  • in an increasingly complex home lending landscape, are working in the interests of consumers trying to negotiate one of the biggest financial decisions they will likely make only a couple of times in their lifetime. The probability of those consumers knowing the options available to them is remote
AFG will continue to ensure those messages get through, and we will be encouraging the decision-makers to look at what our industry does well. We encourage all brokers to do the same by picking up the phone or sending an email to their Federal Member of Parliament to remind them that mortgage brokers deliver true competition in the lending sector and real choice for consumers.

 David Bailey is CEO of the aggregator AFG. He has been with AFG since 2004 and is a chartered accountant and a member of the Financial Services Institute of Australia.