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ASIC review calls for commission overhaul

Australia’s competition watchdog has slammed mortgage brokers’ remuneration structures and called for an overhaul of the industry.

Friday, March 31st 2017, 6:00AM

by Susan Edmunds

ASIC has released its review of mortgage broker remuneration, a report that was compiled after the Government requested a review of the mortgage broking market.

The report was scathing of the conflicts of interest it saw for brokers.

It made six proposals for significant change.

It wants the industry to change its standard commission model, so that brokers are not paid only on the size of the loan, to reduce the risk of poor consumer outcomes.

It wants it to move away from bonus commission for brokers and bonus payments for bank staff, move away from soft dollar benefits, provide clearer disclosure of ownership structures in the home loan market, establish a new public reporting regime of consumer outcome sand improve the oversight of brokers by lenders and aggregators.

Australian brokers deal with half the country's home loans and arranged 520,000 new loans in 2015.

Lenders paid about A$1.42 billion in upfront commissions in the year, and $984 million in trail commissions.

But ASIC said the standard model of upfront and trail commissions created conflicts of interest.

“Firstly, a broker could recommend a loan that is larger than the consumer needs or can afford to maximise their commission payment. This may also involve recommending a particular product or strategy to maximise the amount that the consumer can borrow.”

The review of 17 lenders, 14 aggregators and more than 40 broker businesses found the structure of might push borrowers into loans that exaggerated their needs and on to lenders that offered greater bonuses.

“In general, because commissions are linked to the size of the loan, the more that a consumer borrows, the more the broker will be paid,” the report said.

Aggregators were also criticised. 

Volume-based commissions drove conflicts of interest and “increase the risk of poor consumer outcomes”, the report said. It found that the closer aggregators got to their targets, the more it influenced what products their brokers recommended.

Brokers were also swayed by commission campaigns: ASIC found the volume of home loans written “increased by a factor of over four” for one lender when it offered higher commissions for a limited period.

Submission on the report are open until the end of June.

Tags: ASIC

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 3.19 3.19 3.49
AIA Special - 2.69 2.69 2.99
ANZ 4.44 3.15 3.25 ▼3.39
ANZ Special - ▼2.55 ▼2.69 ▼2.79
ASB Bank 4.45 3.19 3.19 3.49
ASB Bank Special - 2.69 2.69 2.99
Bluestone ▼3.49 ▼3.49 ▼3.49 ▼3.49
BNZ - Classic - ▼2.55 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.25 3.29 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union South 5.65 4.75 4.75 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.60 2.65 2.80
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 3.99 2.58 2.68 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.40 3.54 4.00
Kiwibank - Capped - - - -
Kiwibank - Offset - - - -
Kiwibank Special 3.40 2.65 2.79 3.25
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.29 3.19 3.49
SBS Bank Special - 2.79 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 ▼2.69 ▼2.75 ▼2.99
The Co-operative Bank - Standard 4.40 ▼3.19 ▼3.25 ▼3.49
TSB Bank 5.34 ▼3.35 3.49 3.79
TSB Special 4.54 ▼2.55 2.69 2.99
Wairarapa Building Society 4.99 3.75 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.55 2.69 2.79
Median 4.55 3.19 3.22 3.39

Last updated: 13 July 2020 7:38am

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