Recommendations To Alter Finance Industry Commissions

The Combined Industry Forum has released details of its response to Treasury on Mortgage Broker remuneration, laying out six principles and defining an industry standard for “good consumer outcomes”.

The paper, which is yet to be released in its entirety at time of writing, responds to the proposals outlined in ASIC’s Review of mortgage broker remuneration and considers the third-party recommendations of the ABA’s retail banking remuneration review.

In the response, the CIF agrees to six principles that aim to “ensure better consumer outcomes and improved standards of conduct and culture, while preserving competition in mortgage broking”.

The six proposals are:

1. The standard commission model will avoid financial incentives that encourage consumers to borrow more than they need or will use for example, by basing commissions on facility drawdown net of offset.
2. Volume-based and campaign-based commissions paid by lenders and aggregators are recognised as raising potential conflicts of interest and poor customer outcomes and are expected to cease.
3. Non-monetary benefits will only be given based on a balanced score card and good customer outcomes, and benefits given by lenders will be capped.
4. Ownership models and commercial relationships will be made clear on all marketing materials, including websites, where ownership is greater than 20 per cent so consumers have the right information to make informed choices.
5. ASIC and consumers will be given clearer information on where loans are written, commissions paid and interest rates to increase transparency and accountability in the industry.
6. The industry will introduce an improved Governance Framework that monitors for, and identifies risks, and requires the industry to act and continuously improve where issues are identified.

The reforms also, for the first time, set a standard definition for “good customer outcomes”, which looks at the size and structure of the loan, affordability, responsible lending requirements and individual customer needs.  The definition reads: “The customer has obtained a loan which is appropriate (in terms of size and structure), is affordable, applied for in a compliant manner and meets the customer’s set of objectives at the time of seeking the loan.”

Industry Comments on The Consumer Being Put First

Fox Finance Group’s Chief Executive Officer Nathan Drew said, “The Finance Broking industry has introduced true competition to Australia’s lending landscape and this has delivered vastly better outcomes for consumers. With that said, there will always be areas for continued improvement. One key part of the Core Values here at FFG is to ensure that we play our part in keeping the Financial Landscape competitive. As we continue to succeed in achieving this, our Clients will continue to benefit from some of the best loan interest rates and terms that have been available for some time.  We welcome the proposals and feel that anything that keeps the consumer front of mind will benefit everyone long into the future.”

Australian Banker’s Association deputy CEO Diane Tate added: “We have put customers at the centre of this important package of reforms. The industry will be holding itself to a new standard, set higher than the law requires, when assessing good customer outcomes. The banking industry is committed to implementing this reform package and to monitoring the impact of the reforms to ensure they are delivering benefits for customers.”

Two Broker Association heads also commented on the reforms.

MFAA CEO Mike Felton said: “It has been tremendous to be a part of an industry that has united in its commitment to ensuring that broker remuneration is targeted at promoting strong consumer outcomes and the sustainability of our industry. It is a credit to all industry participants and representatives that they have embraced the task of self-regulation and delivered this suite of genuine reforms in such a timely and comprehensive manner.”

FBAA executive director Peter White said: “The undertakings and endeavours of the Combined Industry Forum have been an extensive exercise in co-operation and mutual respect between those who are not always necessarily aligned on matters. It has been a rewarding time to see how we as an industry and competitors can work together for the good of an industry we hold dearly, and to ensure good consumer outcomes are continued to be maintained by our actions. “It is an honour to be a part of this group, and the journey will continue into the future as we continue to work with government and our regulators on these outcomes.”

Fox Finance Group are proud to be one of only a small number of Financial Service Groups within Australia to be able to offer a whole suite of Financial Products under one roof.  Our team comprises specialists within our Divisions of Home Loans, Business Loans, Commercial Loans, Car Loans, Equipment Loans, Leisure Loans and Financial Planning.