Mortgage brokers face best interests duty

productivity commission mortgage broking australian securities and investments commission

8 February 2018
| By Mike |
image
image
expand image

A consumer best interests duty should be imposed on the mortgage broking industry, according to the Productivity Commission (PC).

The PC has found that the payment of trail commissions creates perverse incentives for mortgage brokers by rewarding them for keeping customers in their existing loan.

It said “broker loyalty appears skewed towards the institution, not the customer, and thus likely discourages refinancing” while “the inclusion of commission clawbacks in the remuneration structure for mortgage brokers acts as a direct disincentive to consumer switching of home loans”.

In a draft report referencing the benefits of many of the regulatory changes imposed on the financial planning industry, the PC said the Australian Securities and Investments Commission (ASIC) should impose a clear legal duty on mortgage aggregators owned by lenders to act in the consumer’s best interests.

“Such a duty should be imposed even if these aggregators operate as independent subsidiaries of their parent lender institution, and should also apply to the mortgage brokers operating under them,” the PC’s draft report on Competition in the Australian Financial System said.

Discussing the issue, the draft report pointed to the issue of contractual arrangements between providers and intermediaries and said that for some products, the payment of commissions by financial service providers could undermine the ability of intermediaries to give impartial advice or recommendations in the interest of consumers.

“For example, in the home loan market, mortgage brokers are remunerated via commissions paid by lenders, which could create disincentives for brokers to act in the interests of consumers,” it said.

 

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

5 hours ago

Interesting. Would be good to know the details of the StrategyOne deal....

4 days 10 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 2 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 4 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

3 days 8 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

2 days 11 hours ago