The political temperature surrounding potential sweeping changes to the mortgage broking industry has tempered somewhat over the last day, with Prime Minister Scott Morrison expressing support for the industry.
However, brokers remain concerned politicians will push ahead with what they believe are damaging reforms, and are turning to activism to apply additional pressure.
They fear banking royal commission recommendations which would do away with the current commission-based revenue model in the industry could drive them out of business.
Delivering an address to the National Press Club yesterday, Morrison said he doesn’t want to see the sector “wither on the vine”, pledging to work closely with the industry on implementing reforms.
“I don’t want to see this sector wither on the vine and be strangled by regulation that would throw them out of business, but more importantly would deny choice and competition in the banking system,” Morrison said.
The banking royal commission recommended two key changes to mortgage broking, advocating both trail and upfront commissions be banned to address concern about perverse incentives in the industry tying brokers to banks over customers.
Hayne recommended customers, rather than banks, should pay brokers for their services.
Brokers SmartCompany has spoken to about the recommendations claim 50–75% of their revenue is at risk if the reforms are implemented, while the finance brokers association has claimed as many as 20,000 small businesses could be destroyed.
Other advocacy groups such as CHOICE have, however, accused brokers of scaremongering, saying Hayne’s concern about brokers putting bank commissions over customer interests are warranted and require reform.
Broker “blown away” by support
In an attempt to pressure both sides of politics into tempering their view on the issue, mortgage brokers have turned to political advocacy in recent days.
An online petition started by Sydney-based broker Rob McFadden has received over 67,000 signatures in the last week, with brokers and consumers expressing support.
“I’m absolutely blown away by the traction it’s gained,” McFadden tells SmartCompany.
“I never envisaged it was going to end up where it has.”
McFadden is calling on both the government and opposition to can both the royal commission’s recommendations relating to mortgage brokers, saying they would force him to “reconsider his whole business model”.
PM: The industry can “absorb” changes
The coalition has committed to banning trail commissions but has been coyer about getting rid of up-front payments from banks while the opposition has accepted all of the recommendations “in principle”.
Morrison said yesterday the broking industry could absorb a trail commission ban if done in consultation with the sector.
“The royal commission has recommended some changes that will need to be absorbed over time, those businesses can absorb those over time if they’re done in consultation,” he said.
“I want to see as many mortgage brokers in this country five years from now, if not more then there are today.”
Shadow Treasurer Chris Bowen yesterday said Labor will consult closely with the sector on the royal commission’s recommendations, stressing there was no need to legislate changes urgently.
Neither Morrison or the opposition have elaborated on what degree of consultation they plan to undertake with the sector or supporters of the reforms.
McFadden says a ban on trail commissions, where up-front fees would be paid directly to brokers by customers, would change the way brokers interact with clients for the worse
“Going to straight up-front will kill the client relationship for life, it will make brokers become transactional,” he says.
Melbourne-based broker Edwena Dixon, director of Pinpoint Finance, says the conversation about trail commissions is flawed and should have instead been called “monitoring commissions” to reflect the role brokers play in reviewing loans and rates over time.
Dixon has herself been producing videos in recent days to try and drum up support for the broker cause, directing people to send letters to politicians about the policy.
“While the public sentiment is clear, the politics is muddy at best, and while I appreciate the Prime Minister’s statement, to my knowledge he hasn’t walked back from his intention to eradicate trailing commissions,” Dixon tells SmartCompany.
“It sounds like he’s trying to score an easy political win without actually committing to anything, and the door is certainly open to industry-destroying changes despite his comments.”