Preparing for change
The MFAA has been promoting brokers’ economic contribution and lobbying for support amid concerns the banking royal commission will recommend changes to upfront and trailing commission payments.
Mr Felton said brokers already had backed some changes to their commission payments – such as calculating upfront commissions net of any balances held in offset accounts, recommended by the Sedgwick report, and recommendations of the ASIC broker remuneration review.
Recent changes are believed to be lowering broker incomes by about 9 per cent amid revenue pressure from falling sales and weakening demand for mortgages, particularly from investors.
The royal commission is also expected to make recommendations to reduce conflicts of interest and establish some form of mortgage-broker duty of care to their client, which is a moral or legal obligation to put client interests first.
Mortgage networks and aggregators, who provide administrative and other support services to brokers, have been scrutinised about pressure exerted on brokers to push products regardless of their suitability for the customer.
Brokers and the digital effect
Mr Felton said brokers — and new digital search engines that allow easy price comparisons — had enabled non-major lenders and their affiliates to build profiles and increase market share.
For example, credit unions and building societies had increased market share three-fold to about 4 per cent. Shadow banks had increased almost five-fold to about 10 per cent and brokers’ white-label loans had almost doubled to about 8 per cent.
Major lenders, such as the Commonwealth Bank of Australia, the nation’s largest mortgage lender, is overhauling the way it rewards mortgage brokers to focus on “value rather than volumes”. Under CBA’s new structure, 11 tiers are being replaced by two – “essential” and “elite”, which are based on what the bank describes as “quality metrics”, such as the amount of business, comprehensive and accurate loan applications, and clear evidence of the borrower’s capacity to service the loan.
Westpac also plans to revamp the criteria for access to its lucrative mortgage broker incentive scheme from quantity and loan size to customer service and quality. Called “priority broker support”, the scheme will classify brokers as platinum, gold or accredited. To qualify for platinum, a broker must make at least 12 submissions a year with an 85 per cent accuracy rate in the details it provides about the applicant, their savings, income, liabilities and expenses, and completing contract of sale.
Bank incentives for the broker include “superior service”, faster assessment and approval times and, for platinum members, access to credit policy experts who can “discuss customer scenarios and receive advice”.
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