ASIC review into broker commissions: a lender's perspective

ASIC review into broker commissions: a lender's perspective
ASIC review into broker commissions: a lender's perspective

GUEST OBSERVER

The proposed review of Mortgage Broker Remuneration Structures, suggested by the Finance systems Inquiry (FSI), posed some interesting questions, and as an experienced lender, Bluestone Mortgages would like to offer our perspective on some of the suggestions made.

Our view is that the current remuneration system supports positive consumer outcomes, and that any change would, in the words of Gaden’s partner, Jon Denovan, be a “disservice” to the community.

The reasons for our view are manifold. If the aim of the ASIC Review is to ensure quality consumer outcomes by assessing the impact of different remuneration structures, it is important to look carefully at the potential ramifications of any changes proposed.

Having assessed the potential impact of alternative structures, we have come to the conclusion that any change to the current structure would negatively affect competition in the sector, due to their potential effect on consumer equity, access and the range of loan products available.

A question of equity

First, to equity. No discussion of the remuneration issue at hand is meaningful unless it is first understood that not all lenders, and not all consumers, are created equal. In fact, some lenders and some consumers are likely to be more affected by a move away from the current remuneration structure than others and not in a positive way.

We know that over 50 percent of consumers now choose to access home finance via mortgage brokers. Any move to charge a fee for service for brokers is likely to negatively affect consumers who choose non-bank lenders over the banks.

Which brings us to the question of who these consumers really are?

Often, they are individuals who, while entirely worthy of credit and able to service a loan, for one of many reasons often outside their control do not meet the prescriptive boundaries of traditional banks. Bluestone is one of a number of non-bank lenders which specialises in providing services to the many Australian consumers who find themselves in this category.

A change in the current remuneration structure would mean that this group of consumers, as well as others who chose a mortgage broker, may be required to pay an upfront fee, whereas consumers (often so-called ‘ideal borrowers’) who choose to deal with the banks directly, would not.

This is clearly not equitable.

A threat to access

We then come to the interlinked issue of access. The monopoly of size, scale and market share of the big four and other traditional banks means they already have extensive proprietary distribution channels. Some of the banks have over a hundred years of traditional savings and loan infrastructure, and do not in any way see brokers as being essential to their business success, or even necessary.

Non-bank operators, on the other hand, have shaped their businesses in an entirely different environment. Brokers have played a central role in their business growth, providing distribution services to the lenders and, the crucial other side of the coin, access to the growing group of customers who are no longer required to deal solely with one of a few major players, offering a relatively homogenous product range to a relatively homogenous pool of “ideal borrowers”.

There’s no question in our mind that a change to current remuneration structures would put the use of brokers out of the financial reach of the vast majority of their target market.

This would mean that a large and growing group of Australians would be denied access to one of the most fundamentally important financial transactions they are ever likely to make - buying a home. (And that’s without addressing the wider policy considerations around the role of home ownership in reducing the burden of caring for an ageing population into the future).

Wider choice, more options, more competition

Which brings us to the third and also interlinked part of our argument. And that is the fact that the current model actually promotes healthy and positive competition among lenders, which in turn leads to more options and greater choice for consumers. Which must surely be the kind of outcome the ASIC Review is trying to achieve.

In fact, it’s clear that it is in fact thanks to the current broker remuneration model, and the free access it offers, that consumers are no longer limited in choice to the products and practices offered by the big four and other traditional banks. And clearly consumers are voting with their feet more than half now access their home finance through a mortgage broker.

In summary, from Bluestone’s lender perspective, the mortgage broker remuneration structure as it stands promotes not only consumer choice and competition, it also gives more consumers more access to more options than any alternative model.

All of which lead to a much higher quality outcome for consumers than any alternatives posed to date.

Royden D’Vaz is national head of sales & distribution at Bluestone Mortgages and can be contacted here.

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Home Loans Asic

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