Despite assurances from Government that existing ‘upfront and trail’ commissions for mortgage brokers will not be prohibited, industry representatives will look to clarify ambiguous wording in an amendment to the NCCP Mortgage Brokers Bill (2019), which also seeks to introduce a best interest duty for brokers.
Finance Brokers’ Association of Australia managing director, Peter White, says while the FBAA is satisfied the Government isn’t targeting the commissions that are the bread and butter of the nation’s 16,000 mortgage brokers, it will address “ambiguity in the verbiage” of the Bill in its submission to Treasury.
The Bill proposes a ban on conflicted remuneration that… “could reasonably be expected to influence the credit assistance provided”, which White says is not a reference to upfront and trail commissions.
“It has nothing to do at all with the actual upfront and trail structures,” he says. “It’s all around volume bonuses, incentives, soft dollar commissions and so on.”
Nevertheless, the Bill fails to clearly specify which elements of remuneration it refers to, which the FBAA is keen to redress. “We are dealing with that,” White says.
The FBAA represents the interests of around 8500 Australian members, predominantly mortgage brokers.
In March, Treasurer Josh Frydenberg took changes to upfront and trail commissions off the table, announcing the Government “has decided to not prohibit trail commissions on new loans, but rather review their operation in three years’ time”.
“The Government wants to see more mortgage brokers – not less,” Frydenberg added.
The Treasurer instead focussed on cleaning up the controversial remuneration channels at the edge of brokers’ books.
White says the FBAA has no problem with the proposed changes to these forms of remuneration. The Bill puts a regulatory framework around changes industry representatives already agreed to during the 2017 Combined Industry Forum, he notes.
An appropriate measure
White says the FBAA is broadly behind the Bill’s proposal for a best interest duty for brokers, but has some concerns it will also address in its submission.
Chief among these are the 5000 penalty units – or roughly $1 million-dollars – tabled in the Bill for contravention of the legislation, which White says is “concerning”. The amount is more than double that prescribed in the NCCP, he says, and has the potential to send professional indemnity insurance premiums “through the roof”.
“The important piece with best interest duty is that it needs to be an appropriate measure for what a broker does,” White says. “Brokers give assistance, they don’t give advice.”
“Even though we take it very seriously it’s a different thing than a full-blown advice model,” White adds.
He says a best interest duty won’t really add to the compliance workload of brokers (“a little bit, but not a lot”), because most of the processes are already in place.
The real concern, White reckons, is that the Government will push too hard for a quick resolution and “screw up” the legislation.
“We’ve seen this happen before when Government pushes legislation through and then there’s amendment after amendment, but it was bad legislation to start with,” he says. “It’s a dangerous thing to be in the middle of.”