Reprieve for Mortgage Broker Trails

The Government has stepped back from its earlier position on dispensing with trail commissions for mortgage brokers.

Treasurer, the Hon Josh Frydenberg…the Government wants to see more mortgage brokers; not less

In a statement released this week, the Federal Treasurer, Josh Frydenberg, has said that, following consultation with the mortgage broking industry and smaller lenders, “…the Coalition Government has decided to not prohibit trail commissions on new loans, but rather review their operation in three years’ time.”

This announcement differs from the Government’s initial response to the Banking Royal Commission’s recommendation 1.3, which called for lenders to be prohibited from paying trail commission to mortgage brokers in respect of new loans, to which the Government’s original response was that from 1 July 2020, it would prohibit – for new loans – the payment of trail commissions from lenders to mortgage brokers and aggregators.

In his release, the Treasurer said the mooted 2022 review is to be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission – a review which he says will also consider the continuation of upfront commissions.

The Treasurer said the Government has already announced:

  • The best interests duty will legally oblige mortgage brokers to act in the best interests of consumers
  • A new requirement that the value of upfront commissions be linked to the amount drawn‑down by borrowers
  • A ban on campaign and volume-based commissions
  • A two year limit on claw-back, starting from 1 July 2020.

He says these changes will address conflicts of interest in the industry by better aligning the interests of consumers and mortgage brokers. He added that he believes mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market, noting that almost 60 per cent of all residential mortgages are settled by mortgage brokers.

In declaring the Government wants to see more mortgage brokers – not less, the Treasurer also said ASIC’s 2017 review of mortgage broking remuneration did not identify trail commissions as directly leading to poor consumer outcomes and did not recommend the removal of trail commissions.

  • Jzee

    Now that’s what we’re talking about Financial Planning Industry!

    • CAFS from WA

      No need to get too excited Jzee. Our battle will be a lot harder than that of the Mortgage Brokers. To put it bluntly Mortgage Brokers do not have the UNION movement as a competitior in their market space. If the Unions ever decided to move into the Mortgage lending business, then they will do the same as they have done to the Superannuation and Life Insurance industry. Use their power and influence to coherse Politicians from all sides via their own funded political party. The Australian Labor Party. Then all bets will be off and Mortgae Brokers will be hit with the same level of compliance and other regulations that will not be required to be adhered to by their new competitiors – Union Based Mortgage Brokers. We in the Financial Advice / Planning space are in direct competition with the Unions and as such are at the mercy of such blatant anti-competitive activity.

      • Jzee

        Point taken CAFS from WA! Having said that, the way the Mortgage Broking Industry and their Association have been on the front foot from day 1 has been a credit to them. With their “battle” they’ve actually swayed the public and the media onto their side and made some huge in roads to getting not only the Govt to back down but also likely to have the Bill Shorten crew follow suit!

  • Just About Done Now

    What a (welcome) back flip though!

    How did the Government (and an ‘apparently’ rather intelligent Judge come Commissioner) not see already see that “mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market, noting that almost 60 per cent of all residential mortgages are settled by mortgage brokers.”

    Staggers me it took this long to come to this common sense conclusion but its great for consumers and mortgage brokers that it has (for now).

  • Ken

    Don’t tell me that their “up in arms” advertising and lobbying did not have anything to do with this backflip let alone the Libs needing every vote they can get at the moment
    Come on AFA start swinging

  • PS

    The irony is agonising! Apparently, if we believe Labor, ‘churning’ has only ever existed within the insurance industry. Virtually doubling the upfront amount payable to a mortgage broker [albeit on the draw down amount only] ??? – yet at the same time, denouncing any form of future upfront commission for all the work we do just to get close to doing a new client application. Unbelievable hypocrosy.

    Forget the AFA, where is the united & loud voice from all life office FSC members strongly supporting advised risk insurance commissions? Is Zurich to be the lone voice in the wilderness? Come on AIA [CommInsure], BT, ClearView, MLC, TAL [Asteron] – the silence is deafening. Don’t just tell us the same old rhetoric that you are supporting us, actions speak louder than words!

  • Danny

    Lets have more Lawyers review the Advice Industry because that really makes sense. Maybe there should be a review of the Legal profession conducted by Financial Planners. Makes just as much sense. I am sure we would be able to reach conclusions and cast our opinions in the absence of any evidence. Ask your clients what they think about lawyers (as I do) and then see what industry needs reform.