Mortgage Brokers: The Connection Between AI and Broker Remuneration

Two topics are all the rage lately artificial intelligence (AI) and an ongoing debate about broker remuneration. Last week there was an interesting article published by AustralianBroker. It stated that AI is poised to handle up to 80% of broker loan deals within five to seven years according to Julian Fayad CEO of LoanOptions.ai . Today, FBAA and MFAA have both opposed the recommrndation made by consumer groups calling for a fresh review of broker remuneration by ASIC. I see an interlink in these two topics. The question at hand is how can brokers remain relevant and secure their future in the industry amidst these changes?

Consumer groups have urged the Senate Economics References Committee to conduct a new ASIC review into broker remuneration and the quality of credit advice offered by brokers. These groups argue that additional research is needed to confirm whether the current remuneration structure serves the best interests of consumers.

However MFAA and FBAA assert that there is no systemic harm linked to brokers and point to the minimal complaints registered with the Australian Financial Complaints Authority (AFCA) as evidence that brokers are operating in the best interest of their clients.

The rise of AI in the broking industry brings a new layer to this debate. With AI expected to handle a significant portion of routine, low-complexity transactions is it fair for brokers to be remunerated at the same level for theoritically doing less work? Essentially brokers are being urged to focus on adding value in areas where human expertise is still essential. AI has the potential to automate vanilla transactions (standard refinances and simple personal loans) nudging brokers to redirect their focus to more complex and high-value deals (SMSF loans, trust structures and construction deals).

Brokers will realize that the current commission-based structure no longer adequately compensates them for their work. This is where the debate around a fee-for-service model gains traction. Reason being brokers will be acting more as advisors guiding clients through intricate financial scenarios that calls for a fee for service model to compensate them for their elevated expertise regardless of loan size. This is positive as it will enhance the mortgage broking industry's image, professionalism and trustworthiness further.

Just as doctors are seen as experts in their field due to their specialization and professional demeanor, mortgage brokers will be forced to build a similar reputation by developing niches and adopting a more consultative approach to client interactions.

Brokers are essential to creating competition in the market, ensuring that consumers have access to the best rates and a variety of lenders. Without brokers, bank dominance could lead to higher interest rates and fewer options for borrowers. Brokers will need to reinforce their value proposition by emphasizing their role in increasing market competition and demonstrate how they deliver outcomes that AI cannot replicate (at least for now). This could be by participating in government discussions on housing affordability, credit regulations and financial reforms to prove that brokers are committed to consumer welfare.

Conclusion

Rather than viewing AI as a threat brokers should embrace AI technology to increase their efficiency. AI can handle routine tasks allowing them to focus on building relationships with clients, upskilling themselves to write complex deals and increase their earning potential in the future. In time, the combination of expertise, integrity and impact with help the mortgage broking profession gain the level of recognition it deserves.

References:

1. AustralianBroker: Industry Insights on AI in Broking
2. The Adviser: Mortgage Broker Associations' Responses to Remuneration Review
3. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (2019)
4. ASIC - Regulatory Guide for Broker Remuneration