James Mitchell| The Adviser| 21 April 2017
A mortgage industry veteran has highlighted that both the ASIC and Sedgwick reviews — the latter of which has recommended sweeping changes to broker commissions — are not based any documentary evidence that current remuneration structures lead to poor consumer outcomes.
Former Mortgage Choice chief executive Michael Russell, who now heads up national broking group MoneyQuest, offered his response to the recently released Sedgwick review.
“The Sedgwick Review makes 21 recommendations for banks to consider to ensure their remuneration structures across their first and third parties align with good consumer outcomes,” Mr Russell said.
“In formulating the recommendations, the author makes the following key observation regarding current remuneration practices — ‘it remains my view that there is not sufficient evidence of significant systemic risks of poor outcomes’,” he said.
“In fact, neither the Sedgwick report nor that of ASIC’s last month, contain any tangible evidence of poor customer outcomes stemming from current mortgage broking remuneration structures in particular.”
Consequently, Mr Russell said that the recommendations within both reviews are “based on perceived risks and not documentary evidence of remuneration structures that are delivering poor consumer outcomes.
“This is an important distinction that needs to be made with respect to mortgage brokers in particular, given that ASIC, banks and mortgage brokers continue to work very collaboratively to deliver good consumer outcomes,” he said
Looking solely at the recommendations pertaining to mortgage brokers, Mr Russell said the Sedgwick report almost mirrors that of the ASIC Review and should largely have the broad support of the mortgage broking industry:
• Cease volume-based incentives;
• Cease soft-dollar payments;
• Cease campaign-based incentives;
• Standardise the governance of mortgage brokers and bank sales staff;
• Link upfront and trail commissions to more than just loan size.
“While conceptually linking upfront and trail commission to more than just loan size appears logical to mitigate perceived conflicts relating to loan size and differing lender commissions, there is a much deeper discussion to take place with respect to a number of unintended consequences that would adversely impact certain borrower segments in the event commissions be linked to LVRs, loan types and/or borrower quality as both reports moot,” he explained.
“Any amendment to the composition of upfront and trail commission must not create a disincentive for mortgage brokers to not assist all borrower segments as one point the Sedgwick Review makes very well is ‘the customer is key’ and that must mean all customers have equal access and opportunity.”
MoneyQuest strongly supports the continuation of the current upfront and trail structure echoed by ASIC and subject to the removal of volume, campaign-based and soft-dollar incentives.