1. Change in the duty of a broker from recommending “a not unsuitable product” to “acting in the best interest of the intending borrower”
This one is pretty self explanatory and at Napoleon Finance we do this day in day out as do a vast majority of brokers in the industry. In the latest quarter broker submitted loans were up at 59.1% of all home finance applications showing that consumers are agreeing with this sentiment and taking advantage of the value that brokers offer. For the same time period there were 6,522 complaints made to the AFCA (Australian Financial Complaints Authority) and of these only 29 related to brokers.
2. Removal of trailing commissions
Trailing commissions were originally introduced as deferred payment by the banks in exchange for the on going service provided to a clients as well as to reduce the allure of “churning” loans. A lot of brokers including us at Napoleon Finance continue to service our clients after the loan has settled. Examples of this including our annual reviews, organising loan splits for the clients, re fixing loans and dealing with any other queries. All this work does not result in new business for the bank so the broker is not remunerated for the time spent. This form of payment has been recommended to cease from July 1 2020.
3. Switch to a fee for service model
The report recommended that up front commission payments to the broker from the bank should be replaced with a fee for service model, where the borrower bears the cost, similar to what is used in the Netherlands. The current Government have said that they will not adopt this recommendation, instead undertaking to review the structure in 3 years time. As part of the Treasurers response, he noted various reports into this issue have found that the change to a user pays system may have a negative impact on both the industry, the consumer and the wider Australian economy. Brokers currently provide increased access to lenders outside the big 4 resulting in greater competition and a larger selection of loan options that may better suit the consumers individual circumstances. If we were to switch to a fee for service model we believe that most consumers would default to going to their local bank rather than exploring more suitable options due to the extra cost borne. Currently clients are able to access a brokers knowledge and expertise and receive tailored advice and choose from a wide variety of options from over 25 lenders at no cost to them.
Sams Thoughts
What must be stressed is that the report is only a recommendation at this stage. With an election in May and parliament closing next week we believe no changes will be implemented until the earliest August 2019 IF they pass legislation. Ultimately our thoughts are if Australia does adopt a fee for service model which is borne by the consumer the big 4 banks Oligopoly will strengthen and competition and positive consumer outcomes will decrease.
If you want any further information feel free to contact the award winning team at Napoleon Finance.