Mortgage brokers face best interests duty

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”.

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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.


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Obviously the Best Interests Duty (BID) should be extended to Mortgage Brokers. But you are missing the bigger problem of Direct Insurance Sales (the dodgy underbelly of the financial services world).

THE BID must be extended to all Life, TPD, IP sales and direct insurance sales should have been the first distribution wing which it applied to. In 99% of cases Direct Insurance sales would not pass the BID (if applied to the same standards as Financial Advisers are held to) because the policies are super expensive, not tailored to a clients situation and have little chance of paying out due to underwriting at claim time.

So they are complaining Brokers are not churning loans enough because of Trail comms, which is the exact opposite to what they complained about with insurance. HA!

Claude I was thinking the same, how people can twist data and words to thier own advantage, this is a perfect example. So then with the 2 year clawback for insurance surely the PC would be against that, as it means we are forced to "stay loyal to the insurance company", the government legislated this so that we are forced to keep policies with the insurance companies, even if its not in the clients best interest. ha ha ha what a joke. What a industry!

And yet we have O'Dwyer and the FSC creating dodgy laws to force advisers to keep customers with the same insurance company regardless of whether this is in their best interest or not. This also allows insurance companies to raise premiums on existing customers whilst only reducing premiums for new business which is exactly what they are doing.
I agree with the above comments. This industry becomes a worse joke by the day.

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