Banks defy FOFA approach for mortgage brokers

18 January 2017
| By Mike |
image
image
expand image

While the major banks have shown a willingness to reduce some of the "sales culture" around staff remuneration, they are proving significantly less willing where their broking staff are concerned.

That is one of the key findings in the latest issues paper issued by Stephen Sedgewick as part of the Australian Banker's Association (ABA) Retail Remuneration Review in which he has called for further submissions around remuneration issues.

The issues paper points to the fact that while the banks had been forced to address major issues in the financial planning industry, they were showing only reluctant interest in addressing the same problems in the broking arena.

In the detailed analysis contained within the issues paper, Sedgewick said that "while many banks are moving to de-emphasise sales-related remuneration in retail banking for employees, there is less evidence that banks are doing likewise in their broking channels".

"Some banks have stated that their scope to change such practices is constrained by market forces and an unwillingness to risk market share by upsetting established remuneration norms. That unwillingness may itself suggest that the relative remuneration available from banks may affect the behaviour of mortgage brokers," the issues paper said.

The issues paper said "the use of upfront and trailing commissions incentivises sales, as they are designed to do".

"Where a broker can earn a significantly higher commission to sell one product over another, they are incentivised to sell that product, which may not be the most suitable for the customer, potentially leading to poor customer outcomes," it said. "This risk is further amplified through the use of accelerators (i.e. the commission increases the larger the volume sold by the third-party channel)."

"The fact that many banks are reluctant to defy industry practice and move away from commission-based arrangements and the success of campaigns based on increased commission deals suggest that the risk of commission-related mis-selling is not insignificant in this market," Sedgewick said.

"Indeed, data was presented to the review that suggested that third-party mortgages are likely to be larger, paid off more slowly, and more likely to be interest-only loans than those provided to equivalent customers who dealt directly with bank staff."

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 1 week ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 1 week ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 3 days ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 1 day ago

Having divested its advice business in August, AMP is undergoing restructuring in at least four other departments amid a cost simplification program....

2 weeks 5 days ago