Knowledge is everything - My Notes from NAB's Presentation - 06.04.17

Earlier today I attended the “Knowledge is Everything” conference presented by NAB which included ASIC’s extensive review on a broker's remuneration. 

For those unable to attend please feel free to review my notes below: 

*Why the review? to better understand the effect on current remuneration structures & on the quality of consumer outcomes.

*This investigation serves as ASIC’s biggest ever data collection project

*Investigating 14 aggregators, 3000 customers & 1.4 million loan applications

*ASIC acknowledges the incredible work done by brokers & value’s the competition added to the market (Some lenders heavily rely on the constant support of the 3rd party distribution network).

*Brokers earned $1.42 Billion in upfronts & $948 Million in Trail

*In 2015 ASIC's review determined there were $520,000 loans written, $175 Billion in new loans, 54.3% of home loans sold went through a broker & $2.4 Billion in commissions paid by lenders to aggregators.

*Current expectations is that Upfront & Trails will remain untouched – however incentives, Volume Bonuses and quota targets for bonus commissions are likely to be removed.

RBA – Looks at the overall health of the economy

APRA – Monitors the stability of the banking system

ASIC – Looks at the outcome & constantly strives to protect the consumer

Two main Restrictions placed on the Banks by APRA:

*Late last year, the Australian banking regulator (APRA), said it would crack down on rapid growth in loans for property investment. There was a 10% cap placed on these loan types

*Banks will soon also be heavily restricted to new business not exceeding more than 30% of loans being I/O loans.

Concerns:

*Brokers making the right recommendations to customers

*Significant risks for customers taking IO Loans, particularly with high LVR's.

*Commissions are paid on Loan Limits & research found that loan limits were 7% higher in the 3rd party channel compared with their retail counterparts, the fear of brokers providing a higher loan limit than is actually required. 

*IO recommendations were also higher where loans were introduced by brokers

*Volume based Incentives (VBI’s)

*Soft Dollar incentives where brokers are given higher targets & in return receive free lunches, dinners & OS conference tickets

*The use of lenders offering Premium/Diamond/Flame status to brokers where they often receive quicker turnarounds; however have volume based targets to retain their privileges

*Research found that Customer Living Expenses were heavily reliant on the use of HEM, therefore, more work is needed to educate brokers to further probe their customers

*Lenders Owning Aggregators/Aggregator White label products being offered to brokers (Vertical integration where brokers may be asked to support lenders based upon ownership) 

(APRA will also continue to keep an eye on High LVR Business)

5 Themes on ASIC’s review of Mortgage Broker Remuneration:

1 Improving the Standard Commission Model for Mortgage Brokers

2 Moving away from Bonus Commissions & Soft-Dollar Benefits

3 Broker Customers & Broker Customer Loans 

4 Industry & Competition

5 Governance & Reporting

Main Reasons Why People Use a Mortgage Broker

*Access a wider range of loans

*Get a better rate

*Broker is knowledgeable

*More convenient

*Save time

*More likely to get a loan approved

*Good/personalised service

*Broker is independent

*Access to extra products 

Overall a very positive outcome for mortgage brokers, should you wish to lodge any feedback regarding ASIC's recommendation, please reference the following:

Closing date for submissions: Friday, 30 June 2017

Address written submissions to:

Manager

Financial Services Unit

Financial System Division

The Treasury

Langton Crescent

PARKES ACT 2600

Email: [email protected]

For enquiries please call 02 6263 3626.