Anthony Waldron| The Adviser| 20 February 2017
The rise of the mortgage broking industry to become the major distributor of mortgages is due to a public vote of confidence.
Millions of Australians – some 53 per cent of mortgagees – turn to a broker to represent their interests. First home buyers want a simplified initiation into the housing market. Investors want assurance of their long-term outlay. The demand for broker services has never been greater.
The industry’s rapid growth during the past few years has brought unprecedented opportunity, and with that also comes a healthy dose of scrutiny. NAB has worked hard, and continues to build an ever-improving service for both our brokers and our customers, where trust is the common denominator.
We believe the disclosure of broker commissions, incentives and relationships is integral to earning customer trust. To make a truly informed decision, customers need to know who is getting paid by whom and how much.
It is for that reason that as a lender, NAB does not pay any sort of volume bonus on mortgages. Whether VBIs have an influence on which mortgage is actually recommended to the customer is not the point – it’s the lack of transparency, which undermines public trust. If a customer could think that there has been a link then we have a problem. In contrast, commissions (both up-front and trail) can be disclosed to customers, which is why we believe they are a fair and appropriate way to remunerate brokers and enable consumers to afford their valued help, guidance and advice.
If we can learn anything from overseas markets and even the financial services industry here at home, it is that trust can erode quickly. While yesterday’s behaviours are often judged by today’s standards, you can also strengthen trust by demonstrating your focus on doing the right thing by your customers every day.
With this in mind, if we are going to continue to grow we must be agile enough to adjust and remain ahead of consumer expectations. We must manage not only evident conflicts of interest, but also any perception of conflicts – not just for today but for the future. The external scrutiny on the financial services industry will likely continue in 2017 and beyond, along with the regulatory focus too on both lenders and their third-party distribution channels. The recommendations of ASIC’s broker remuneration review will be an important milestone for both the industry and our customers.
Our business does not always get things right. One issue or problem where we have let a customer down is one too many. The challenge is to make sure we have the right processes and controls in place to pinpoint where customers are let down, and the conviction to make it right.
I believe the National Consumer Credit Protection Act 2009 (NCCP) has helped to grow trust in the broker market by creating a regulated lending framework and improving the quality of engagement with customers. We now need to take this further through our own practices. One of the best ways we can do this is by ensuring absolute transparency for our customers, and managing the risk of a perceived conflict of interest. Customers know that their brokers have access to as wide a choice of lenders as possible. Brokers access these lenders through their aggregator. The average number of lenders available on most aggregator panels is circa 30 plus. Many of these lenders could not grow if it wasn’t for the support of the broker market. This has created a much more competitive home loan market – and ultimately greater choice for consumers.
At NAB we are in a unique position, not only operating as a lender under both the NAB and Advantedge brands but also owning the PLAN Australia, Choice and FAST aggregation businesses. Over 4,400 brokers have chosen to operate across these three aggregation businesses. We respect that choice and do our best every day to maintain their support. As a ‘vertically integrated’ business we also know that we have an important role to manage conflicts and perceived conflicts carefully to protect the interests of brokers – and ultimately customers. That is one of the reasons we have chosen to have no ‘lock in’ clauses in any of our agreements with brokers. If any of them ever want to move to another aggregator they can and continue to receive their commission payments. We also support that this ownership should be disclosed to consumers so they can understand any relationship that may exist between a broker business and NAB.
Trust is the cornerstone of our industry, gained through honesty, integrity, ethics, compliance with regulatory requirements and ‘doing the right thing’ in interests of customers. That’s why it’s essential that the industry, including brokers, aggregators and lenders, continually upholds the highest standards. One loose stone could cause the reputation of the wider industry to crumble.
We are always grateful for the support we receive from brokers. Our success at NAB is tied directly to their success in the market and how brokers do the right thing by their customers. But our industry needs to evolve with the times. Holding ourselves to the highest standards will drive professionalism of the industry, promote good conduct and ensure we continue to get great customer outcomes. Fundamentally, this is all about doing the right thing.