Like the entire mortgage broking industry, the QED team was aghast at the recommendations of the RC on 4 February.
We have contributed enough to the outcry and anguish regarding the proposed changes to broker remuneration. If you are reading this, you are likely aware of the entire industry's stance on these changes. QED thinks that the removal of trail was inevitable because the purpose of trail hasn't consistently been conveyed, that purpose being that banks had forced us to accept the terms of less up-fronts in return for "pay later" trail commissions.
Commissions will work out one way or another and we will all have to pull very hard together to ensure our survival. In Brisbane, Mr Bowen said of the mortgage-broking recommendations: "The royal commission doesn't recommend they be done urgently. The royal commission doesn't recommend they be done tomorrow or next year. They recommend a longer lead time because there's obvious implications. That's appropriate."
So, to change topic to items that haven't really been discussed in the press, of the other proposed recommendations, we would like to take a moment to assist in considering how these could affect your business if they were to be made law.
Removal of the 'point of sale' exemption
One of the few good-sense recommendations of the final report was the removal of the 'point of sale' exemption, which would be a long-overdue removal of something meant to be a temporary loophole.
For your business, this point of sale exemption could represent an excellent opportunity - suddenly, many businesses will lose the capacity to offer finance without the assistance of a broker. Whilst some have raised issues with the quality of service provided to borrowers under the exemption, a well-qualified finance broker partnered with a dealership may be able to offer a wealth of options to car purchasers.
Codes of conduct to be enforceable
The commission recommended ASIC be granted the powers to approve and enforce industry codes of conduct.
The impact that this would have on the industry is minimal - AFCA already follows relevant industry codes of conduct as part of their complaints management process. The FBAA and MFAA have codes of conduct that members are required to follow. Generally, codes of conduct are designed in a 'by the industry, for the industry' manner, so will hold you to account to offer the excellent service you already do but not demand unrealistic outcomes from your business.
Brokers regulated as financial advisers
This was aimed squarely at mortgage brokers and says that what we provide is really the same thing as personal financial advice, even though legally that is technically not the case. Therefore, we should have the same training and same level of disclosure as financial planners - Uni degrees and Statements of Advice.
The Royal commission report itself does note that this is likely to be an issue to be considered for the more distant future and will require significant debate. Whilst applying the documentation and education regimes of planning onto mortgage broking would have a significant impact, this recommendation is unlikely to take effect at any point within the next five years. The reality is that it's unlikely anytime soon and will probably end up on the scrap heap.
Best interest duties
In this section, Hayne struggled with the age-old question of who the broker acts for. Overall, this duty as proposed will not likely have a major impact on the majority of brokers. It's nothing new - carefully understand and record your clients' requirements and objectives and how the loan you brokered met those. It may just require a minor amendment be made to your processes and compliance programme which QED is here to advise on at any time.
ACL holders to be responsible for reference checking / information sharing
There is an existing RG on this topic. This obligation relates to performing reference checks to ensure that new brokers you allow to operate under your licence have not had any previous issues. You may be aware, this is currently an issue recognised by the industry and being managed at the aggregator level. If ACL holders are ultimately given this responsibility, whilst this will mean some more leg work when onboarding brokers QED will be here to provide further advice as to what steps you need to take.
Reporting compliance concerns regarding particular individuals to ASIC on a Quarterly basis
It is currently a major flaw of the NCCP Act that not only is there no obligation to report compliance breaches by ACL holders, there is no actual mechanism that lets brokers report issues to ASIC.
The existence of QED and CompliFast shows that many brokers want to do the right thing and operate in a compliant manner. Our belief is that this obligation would be welcomed by the industry, as the majority of brokers are focused on doing the right thing and would rarely if ever be in a position where they need to report individuals to ASIC.
In many of the above points, the clear suggestion is that recommendations were made without a clear understanding of how the broking industry works, who it works for and what the consequences of changing it will be. The impetus then, lies with the industry to ensure that the government of 2020 understands the consequences of change. The MFAA, FBAA, and aggregator heads are all pouring significant resources into lobbying for the issues that matter to you. The lenders themselves (with possible exceptions who won't be named) and consumers both like the broker channel, because it works.
So what next? Your business should stay business as usual for now. No matter what happens, things won't change significantly for the next couple of years.
Write to your local MP's and Senators. Remind them of how you help consumers fulfil their dreams. Inform them that consumers won't pay for your services - not because they don't value it but because they can't afford you. They've been busting their guts out trying to save for a deposit, they don't have any money for you. Inform them then that, if the government takes away commissions, consumers won't be able to choose you anymore and the banks win.
As always, we're here for you. If you need anything from us, or just need some more information give us a call