|Dear Mr Frydenberg,|
I write to you in response to the findings of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, released to Treasury on 1st February 2019, and to the wider public and media on 4th February 2019.
My response refers in particular to the findings relating to remuneration for Mortgage Brokers.
Mr Frydenberg, I caution you to take care in your analysis of the findings of the Hayne Royal Commission, and consider the implications to competition, access to credit, and the true benefactors of any change to the remuneration structure for Mortgage Brokers in Australia.
Remuneration is made to Mortgage Brokers as payment for the time taken and advice made in servicing the immediate needs of a customer (a once-off upfront payment paid on settlement of a new loan), as well as an ongoing remuneration, paid monthly, for the ongoing services to these clients over the course of a standard loan term.
These are made by the lender, not the customer, as having an intermediary who acts on the customer’s behalf saves the bank from paying a staff member for this work, as well as the associated overhead costs of running a business, such as rent, insurances etc.
Further, this remuneration is disclosed to the customer at the initial stages of contact, prior to loan submission and then again in their loan documentation provided by the lender.
The benefit to the consumer is greater access to loan products, since a broker has access to multiple products across upwards of 30 lenders, as opposed to bank branch staff who can only offer information on their own. Brokers are in a position to offer tailored advice with reduced conflict, since they are working in the consumers interests, rather than those of the lender. With access to thousands of different loan products, a broker has an outstanding and unrivalled expertise in meeting the needs of their customers over the majority of their adult life.
I will highlight some crucial statistics, which further outline the benefit to the consumer and the state of play of the industry as a direct result of broker activity:
– Brokers settled 59% of all residential loans over the September quarter 2018 – its highest level in history, and through the crux of the Royal Commission’s Public Hearings;
– Brokers were responsible for just 0.5% of complaints made to AFCA in its first month of operation, out of a total of over 6,500 complaints made across the sector;
– The major banks’ Net Interest Margin – essentially the difference between their cost of funding and the interest charges passed onto customers – is at its lowest level of all time and has been declining consistently since the introduction of brokers to the market;
– The market share of major banks has continued to decline, to the point where non-majors now account for 41% of all loans settled – highlighting the added competition stimulated by the broker channel.
Mr Frydenberg, I implore you to listen to your electorate, the wider public and the broking community, who have expressed their displeasure with not only the recommendations themselves, but the Government’s response to the report, which aims to scapegoat Brokers while offering the banks little more than a slap on the wrist. This response is both myopic and simply ignores the crux of the Commission’s findings, which is the deplorable conduct and toxic culture within Australia’s banks.
The proposed abolition of trail remuneration will disincentivise mortgage brokers from providing an ongoing service to their clients, encouraging brokers to “set-and-forget” a loan post-settlement. It will increase the interest rates our customers pay on their home loans due to loans not being reviewed over their life. It will increase churn across home lending, as the only way for a broker to generate revenue would be through the settlement of new loans.
The prospective of a move to a “Consumer Pays” Model will ravage the industry, stifle competition, heavily burden consumers through increased interest rates and fees, and force consumers towards only those lenders with extensive branch networks.
This move would serve no purpose, other than increasing the profit margins of our major banks, which are already at record highs.
Mr Frydenberg, I invite you to sit with me for a discussion around the implications of your proposed actions and to provide clarity on the ramifications to the industry and the broader economy. I am available at your earliest convenience.
Yours in faith,
IFA Mortgages & Finance