Christopher Joye| Australian Financial Review| 22 February 2019
Labor has made an important policy backflip on mortgage brokers that has resulted in it formally rejecting one of the royal commission’s most significant recommendations, which undermines its credibility in the brewing election debate.
Labor can no longer claim to have accepted the royal commission’s recommendations, as it said it would do word for word before the report was even released. It can also no longer pretend to embrace the recommendations “in principle”, which was its position after the report’s publication.
One of Kenneth Hayne’s signal recommendations was that brokers should be bound by the same laws as financial advisers, and “conflicted remuneration” (payments from banks to brokers) banned outright. Hayne argued that brokers should be subject to a duty to always look after their customers’ best interests with 100 per cent of their compensation coming from borrowers, not banks.
Labor smashed the Liberals for rejecting this idea and allowing banks to continue to pay brokers an “upfront commission” subject to the introduction of the new best-interests duty and financial-advice-style laws to protect customers.
Yet after copping criticism for gifting $2.6 billion to the banks by removing their single biggest mortgage distribution cost – broker commissions – and shunting this expense on to consumers, Labor has flipped 180 degrees.
There will be practically no change in brokers’ earnings, especially considering that regulators were already going down the path of limiting their compensation to the drawn, as opposed to undrawn, value of a loan.
It is not yet clear whether Labor will also ape the Liberals’ policy that brokers will be subject to a best interests duty and regulations similar to the current “future of financial advice” laws that apply to planners.
This is a blow to Labor’s credibility on the royal commission, because the Liberals will be able to highlight that it has rejected one of its most important findings. Labor misled the public when it said it would accept the commission’s recommendations sight unseen before the report was released, and did so again when it said it would accept them “in principle” after the report was published. As we warned, in principle meant Labor could disagree with everything in practice, which it has done with brokers.
The funny thing is that with the media so politically polarised, the electorate is not getting the debate it deserves. While one national masthead pounds Labor day-in-day-out on everything it can, its rivals are running a relentless campaign against the Liberals. We need a more balanced middle ground.