MoneyQuest Responds to Sedgwick Review
Today marks the release of the Retail Banking Remuneration Review which was commissioned by the Australian Bankers’ Association (‘ABA’) as part of its broader plan to restore consumer trust in the banking industry.
MoneyQuest Managing Director and mortgage industry veteran, Michael Russell, welcomes the review and offers this brief market commentary.
“Commonly known as the Sedgwick Review, after its author Stephen Sedgwick AO, today’s review comes hot on the heels of last month’s ASIC Review of Mortgage Broking Remuneration.
The Sedgwick Review makes 21 recommendations for banks to consider to ensure their remuneration structures across their first and third parties align with good consumer outcomes.
In formulating the recommendations, the author makes the following key observation regarding current remuneration practices – ‘it remains my view that there is not sufficient evidence of significant systemic risks of poor outcomes’.
In fact, neither today’s report nor that of ASIC’s last month, contain any tangible evidence of poor customer outcomes stemming from current mortgage broking remuneration structures in particular.
Consequently, the recommendations within both reviews, are based on perceived risks and not documentary evidence of remuneration structures that are delivering poor consumer outcomes.
This is an important distinction that needs to be made with respect to mortgage brokers in particular, given that ASIC, banks and mortgages brokers continue to work very collaboratively to deliver good consumer outcomes.
MoneyQuest will always support continual improvement aimed at consumer outcomes and as such welcomes any recommendation designed to mitigate perceived risks – but not under the guise there is evidence to support the current system is delivering significantly poor consumer outcomes.
Looking solely at the recommendations pertaining to mortgage brokers, today’s report almost mirrors that of the ASIC Review and should largely have the broad support of the mortgage broking industry:
- Cease volume based incentives;
- Cease soft-dollar payments;
- Cease campaign based incentives;
- Standardise the governance of mortgage brokers and bank sales staff;
- Link upfront and trail commissions to more than just loan
While conceptually linking upfront and trail commission to more than just loan size appears logical to mitigate perceived conflicts relating to loan size and differing lender commissions, there is a much deeper discussion to take place with respect to a number of unintended consequences that would adversely impact certain borrower segments in the event commissions be linked to LVR’s, loan types and/or borrower quality as both reports moot.
Any amendment to the composition of upfront and trail commission must not create a disincentive for mortgage brokers to not assist all borrower segments as one point the Sedgwick Review makes very well is ‘the customer is key’ and that must mean all customers have equal access and opportunity.
While today’s report included a brief mention for consideration of a fee for service, to be set and paid for by the banks, MoneyQuest strongly supports the continuation of the current upfront and trail structure echoed by ASIC and subject to the removal of volume, campaign-based and soft- dollar incentives.
Finally, MoneyQuest heralds two statements in particular that were contained in today’s report and on behalf of all future mortgage holders thanks the author:
- ‘An over-arching principal, however, must be that competition and the viability of mortgage broking is preserved’, and
- ‘Client funded fee arrangements are not supported by the Review’.”
Established in 2007 and relaunched as a franchise in 2016, MoneyQuest was founded with a clear goal – to make property ownership easy and rewarding for everyday Australians. MoneyQuest has over 50 offices across Australia helping thousands of families and investors build their financial future – from first home ownership right through to retirement. More information on MoneyQuest.
Money Quest Australia Pty Ltd, Australian Credit Licence 487823.
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(03) 9583 6598