Aussie mortgage brokers may see a review into their remuneration structure by their regulator, the Australian Securities & Investments Commission (ASIC) after the government indicated the sector would be included in its response to the Financial System Inquiry (FSI).
A major Aussie bank has already voiced its support for the Turnbull government's response to the FSI with NAB executive general manager of broker partnerships Anthony Waldron saying, "We fully support the Government's plan to ensure mortgage brokers sufficiently disclose their relationships with associated entities and we look forward to working with ASIC in their examination of remuneration structures in the mortgage broking sector. We look forward to working with both the Government and ASIC on these two policy areas."
The inquiry itself did not include recommendation for mortgage brokers but was proposed by the government in its response, also with recommendations for financial planners and mortgage brokers to disclose to customers who owns them.
The Treasury said it agreed with Inquiry Recommendation 40, which would require mortgage brokers and financial advisers to disclose ownership structures, saying it will also develop legislation to ensure this.
“We will also develop legislative amendments to ensure that financial advisers and mortgage brokers adequately disclose their relationships with associated entities,” the response stated.
Brett McKeon, managing director of ASX-listed aggregator AFG told our sister publication Australian Broker that he thinks this is a positive move for the industry.
“I think it is important for consumers to be aware where beneficial ownership lies. If a broking group is owned directly by a bank, I think the consumer has the right to be aware and to question the recommendation that is made if it is a product that is promoted by the bank that owns the broking group. I think it is all about keeping consumers informed.”
McKeon says he believes there is a problem with consumer awareness in the industry, however, he does not believe enforcing clear ownership disclosure will harm a broker’s business.
“Consumer awareness for aggregators would be very low but with banking – i.e. CBA owning Bankwest – then I think 50% or 60% of consumers would be aware. However, that means there is still a good 40% to 50% of consumers who would have little or no awareness,” he told Australian Broker.
“In some instances, [ownership disclosure] could change a consumer’s perception – and maybe only one in 10 or two in 10 – because some people will leave ‘Bank A’ because they were dissatisfied with the way they were treated and they will join ‘Bank B’ which is owned by ‘Bank A’, but if they were better informed maybe they wouldn’t do that.
“Similarly, with brokers, if a broker has been recommending a Macquarie or a NAB product, the consumer might just want to overlay one or two more questions to get comfortable about that choice.
“However, a lot of those brokers in those groups don’t write a lot of those banks’ products anyway. I think disclosure has been with us for a while – disclosure around commissions is a good example – so I think brokers will take it in their stride and we will all move on.”