The way Australia’s mortgage brokers get paid has changed, with the broking industry ending volume-based bonus commissions, to help encourage unbiased home loan recommendations.
These changes, detailed in an interim report from the Combined Industry Forum, follow ASIC’s Review of Mortgage Broker Remuneration and the Australian Banking Association’s Sedgwick Review, which identified a risk that the previous structure of incentives encouraged customers to borrow more than they need.
The banking Royal Commission also identified that volume-based incentives in residential mortgage lending were as not meeting community standards and not delivering the best results for customers.
The Combined Industry Forum (consisting of representatives from banks, non-bank lenders, aggregators and brokers, consumer groups and other finance industry bodies) has worked to adopt ASIC’s recommendations since May 2017.
Other changes and reforms recommended by the Forum include:
- Further changes to the standard commission model
- A new regime for controlling and disclosing non-monetary benefits
- Improved public reporting and disclosure requirements
What industry leaders had to say:
Australian Banking Association CEO, Anna Bligh, said the changes would help refocus the industry on customer outcomes:
“By addressing these types of incentives, the industry has acknowledged their failings and taken responsibility to fix the problems to ensure Australian customers are receiving high quality advice.”
Mortgage and Finance Association of Australia CEO, Mike Felton, said he was pleased with the progress made by the industry, as outlined in the interim report:
“This move gives consumers continued confidence that recommendations from brokers are not biased towards a particular lender.”
Finance Brokers Association of Australia Limited (FBAA) executive director, Peter White, described the change as a “fantastic outcome”:
“Moving away from campaign based incentives and other volume-based bonus payments is an important step in addressing community concerns about remuneration practices in the mortgage broking industry.”
“Scrapping these bonuses that encouraged a focus on sales is an important step for the industry and demonstrates its commitment to change while also maintaining healthy competition.”