Mark Haron talks to MPA about one of the CIF's key proposals and what it means for brokers
The Combined Industry Forum has been working to implement a package of reforms it recommended at the end of 2017.
At a recent webinar, members of the CIF discussed a number of important recommendations that will be introduced in areas such as remuneration, ownership disclosure and entertainment and hospitality.
1. What is tiered servicing?
Tiered servicing models or arrangements (also sometimes referred to as “broker clubs”) provide non-monetary benefits, typically in the form of providing preferential service which can assist customers in achieving better outcomes.
2. What are the recommendations and why have they been recommended?
The CIF’s response to the ASIC 516 review of Mortgage Broker Remuneration is as follows
“Access to a Lender or Aggregator’s tiered service model should be determined using a balanced scorecard, with a maximum 30% volume component, as a proxy for productivity, as well as other criteria aligned to ‘Good Customer Outcomes’.
“Access to a tiered service model will be disclosed by the broker where they are recommending a product from that particular lender.
“Such programs should not entitle brokers to preferential customer discounts or to additional payments or commissions. Instead, these programs should provide preferential service which can assist customers in achieving better outcomes.”
3. How does tiered servicing create perceptions of conflicts of interest?
The nature of tiered service arrangements are changing, and are focused on preferential service rather than any other factor. The CIF’s members consider that increased transparency in this area allows the customer to make a more informed choice. The perceptions of conflicts of interests come from the models that have been linked to remuneration or do not utilise a balanced scorecard and could potentially influence the broker’s suggestions.
Recognising the importance of placing customers’ interests first, industry participants have removed arrangements where lenders reward brokers solely on volume of business to tiered service level offerings to brokers based primarily on the quality of a broker’s loan submissions. These tiered service offerings provide multi-faceted customer focused benefits. Examples of the benefits available can be:
• Faster response times to applications
• Direct access to assessors
• Access to upfront valuations
With the increased focus on service, the customer becomes the chief beneficiary of a tiered servicing arrangement.
4. What do these recommendations hope to achieve and how?
Disclosure is targeted to ensure the customer has full transparency and a clear understanding of the benefits or factors that may have a bearing on lender selection by a broker.
5. Where is the industry currently with implementing this recommendation?
An industry guidance note will be released to members in the next week.
6. How will disclosure to consumers be monitored?
Aggregators will monitor the disclosures of tiered servicing arrangements.