With the consultation process for FICOM’s proposed Form 10 disclosure changes winding down, one broker – and former banker – argues the regulator hasn’t provided a sufficient explanation as to why exactly it feels the change is necessary
“We need to determine why FICOM is after mortgage broker's commission disclosure. FICOM never disclosed the real reasons behind their actions,” Walid Hammami, a broker with Dominion Lending Centres, told MortgageBrokerNews.ca. “If they want to protect the consumer they should then be unbiased.”
FICOM is putting forth a new interpretation of regulation Form 10, which would require mortgage documents to explicitly state how much brokers are compensated.
And, in a letter shared with MortgageBrokerNews.ca in early January, FICOM explains its reason for targeting broker commissions.
“(The broker) industry understands that lender compensation can influence a mortgage broker's advice to a consumer. That can result in advice that does not align with the consumer's best interests,” the letter reads. “Conflict of interest disclosure reinforces the relationship of trust between consumers and mortgage brokers, and reduces the risk that consumers receive compromised advice. However, for disclosure to be effective it must be clear and easy for consumers to understand.”
Still, Hammami argues that explanation isn’t adequate.
“FICOM is afraid that the broker is redirecting the deal for the lender who pays most, and that could be to the disadvantage of the client. But what do banks do when they sell you a Visa or an investment?” Hammami said. “Do they direct you to the product where they make the least money? Do they sell you the Visa with fees or without fees? Do they sell GICs or mutual funds?”
FICOM obviously does not regulate the banks. But many industry players have already pointed to the fact that the FICOM change could benefit those lenders.
If, in fact, broker disclosure does influence clients to choose a bank over the broke channel, the argument could be made that that choice could lead to even more biased advice.
“I remember one VP in a bank I worked for threatening financial planners to downgrade them to regular account manager if they don't sell more Mutual funds,” Hammami said. “Same goes for Visa cards with or without fees.”
The deadline to submit feedback to FICOM is February 20.
When asked what sort of feedback the regulator has been given so far, it refused to go into specifics.
“As you noted, we’re still encouraging mortgage brokers to send in their submissions but are not at liberty to share any of the submissions publicly at this point,” Greg Dickson, communications specialist for FICOM, wrote in an email to MortgageBrokerNews.ca.