Productivity Commission submission and request for information

I would like to share with you AFG’s response to the Productivity Commission’s Draft Report on Competition in the Australian Financial System. As you are aware we have been engaging with the Productivity Commission over and above the submission process and they have asked AFG to collate some real examples of the work you do to help your clients and drive competition. Click here to complete the survey. There is a tight turnaround on this request, please complete by next Thursday 29th March.

With last week’s headlines taking aim at our sector, I would like to provide some balance to the noise. It is very disappointing that a Royal Commission ostensibly set up to look into the poor behaviour of the banking sector has evolved to also consider the mortgage broking industry – an industry which for over twenty years has brought competition into the mortgage market place. However, given we now represent over half of all mortgages originated in the industry, it isn’t surprising.

We do however have concerns that the backdrop of the Royal Commission will be used to leverage a better commercial outcome for those organisations which are the primary focus of the Royal Commission, the major lenders.

  • The primary regulator of mortgage broking – ASIC – have recently completed a full review of the Broker Remuneration Model. ASIC indicated that the model is not broken rather it needs some ‘tweaks’. These tweaks have been proposed by the Combined Industry Forum (CIF) which is a group of bankers (including the big four and the ABA), other financial institutions, brokers, aggregators and others who have come together to address the proposals outlined by ASIC. The industry have actually moved to implementation phase of these responses and in many aspects have commenced making changes to previous ways we did business. Examples include the abolishment of bonus payments to brokers, a rationalisation of the array of soft dollar payments as well as changes to how brokers are remunerated on settlement. When combined with increased regulation and surveillance of the channel by ASIC, these changes make for a more robust and responsible industry that continues to be focused on good consumer outcomes.
  • AFG have been an advocate for competition and choice for Australian consumers since it began business, 25 years ago It is why we have 45 lenders on our panel and we are proud of the fact that of all our originations, more than 35% are to non-major lenders – the very same non-major lenders who would be unable to distribute their product and bring competition to the industry without a broker channel.
  • If banks had a more cost effective option to originate mortgages they would use it. Banks accept that the broker channel is how consumers want to access their products.
  • The broker channel provides choice, convenience and competition for Australian borrowers. It is why we originate over 50% of all mortgages in the country and also why this share has grown from around 38% just after the GFC when there was less competition in the market. Without the broker channel, don’t think for a second consumers will be better off.

Whilst the headlines have largely focussed on the Royal Commission this week, there were two other important news releases that are worth noting:

  1. The first was the ACCC’s report into interest rates of the big banks. Conclusions were that pricing was opaque. Without a broker helping their client to navigate the more than 3800 offerings in the market place, how is that client expected to get the right product?
  2. The second was APRA’s announcement that 100 branches have been closed by banks over the past 12 months. Does anyone else think it strange that if the proprietary channel was an efficient means of origination they would be closing branches?

There are estimates of around 16,000 mortgage brokers out there supported by thousands of small businesses who every day go to work to find a better outcome for consumers. At AFG we tell you, our brokers, to concentrate on the outcome for the consumer and the rest will look after itself. I am sure there are other broking groups with a similar mantra. I would encourage you all to keep doing what you do best, helping your clients.

David Bailey

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