During public hearings in Melbourne yesterday, counsel assisting the commission Rowena Orr QC read out the contents of a private letter from Mr Narev to Stephen Sedgwick, the chair of the independent review into banking remuneration and structures.
Dated 10 February 2017, the letter explains that the bank would support extending the FOFA regime regulating financial advisers to mortgage and credit advisers.
“We agree with the reviewer’s observations that while brokers provide a service that many potential mortgagees value, the use of loan size linked with upfront and trailing commissions to third parties can potentially lead to poor customer outcomes,” Ms Orr read the letter as stating.
“Mortgages also sit outside the financial advice framework, even though buying a home and taking out a mortgage is one of the most important financial decisions an Australian consumer will make.
“We would support elevated controls and measures on incentives related to mortgages that are consistent with their importance and the nature of the guidance that is provided.
“For example, the de-linking of incentives from the value of the loan across the industry and the potential extension of regulations such as Future of Financial Advice to mortgages in retail banking.”
Asked to comment on the letter, CBA executive general manager of home buying Daniel Huggins appeared hesitant to respond, requiring further prompting by commissioner Ken Hayne.
“This has been CBA’s position,” Mr Huggins said. “I think the way in which you would achieve this obviously needs consideration. That’s why there is a hesitation.
“Moving to this, for example, de-linking of incentives, [factors] need to be considered about how you would achieve that. There are a range of things to consider.”
Ms Orr went on to probe Mr Huggins whether the bank had taken any steps to cease its practice of paying volume-based commissions to mortgage brokers.
“No, we haven’t,” he said.
However, in its submission to the Financial System Inquiry in 2015 – headed by former CBA CEO David Murray – the bank argued that the FOFA legislation in its current form should be “given time to have its effect” before further regulation should be placed on the financial services industry.
CBA would like to get rid of as many mortgage brokers as possible. Brokers create greater competition and lower prices in the mortgage market – something CBA is very much against. However if CBA can’t get rid of mortgage brokers altogether, their next best option is to coerce them into writing more CBA loans at higher prices. Hence their volume incentive programs and acquisition of brokers like Aussie.
The best outcome for consumers is to get rid vertical integration and volume incentives in mortgage broking. The worst outcome for consumers is to ban commissions. Banning commissions will largely kill off mortgage broking and put more market power back in the hands of the banks. The Productivity Commission has made a huge mistake in leaping to their “commissions are bad for consumers” conclusion. It appears that idealogical bias has overridden analytical rigour on this issue.
What are the chances the Royal Commission will be smart enough to realise what the product providers are up to? Like FOFA and LIF, this is all about reducing competition and pushing clients away from independent advice so they can fleece consumers with rubbish products.
So here we go again. The stupidity of politicians allowing the mess to occur where folks are borrowing in ever larger numbers, loans they will find difficult to repay, poor planning controls allow for concentration of people in citys and suburbs and not sufficientlty spread out into regional areas, as per the Grattan Report released this month, incompentant tax policy settings with gearing and property spruikers running amok despite the aftermath of Storm Financial and what gearing caused there in an irresponsible manner. Now for the scapegoat. Folks, just like the same fools that created the problem policitians, lobbyists and follish regulators such as ASIC found before and after the GFC, the elecotrate is being softened up to blame someone for the mess that property will bring to the economy. Now this means that they will duck for cover. Banks, politicians who created the mess will not accept the blame. Enter the humble mortgage broker. Selling the banks products, operating by the system set forth by regulators and politicians, the mortgage broker is to blame…its these folk, with their greedy commissions and churning, its them at fault.
Ah yes…we have heard this one before. Brokers…beware…your next !!!!
Superannuation holds more secrets than the banks. Most super is owned/controlled by banks and is hidden in secrecy and unaccountability. The superannuant can never hope to prosper given the ability of the bank owned funds being able to sell down underlying shares etc, then to buy them back at a lower price and remain hidden by complex transactions and forwarding the profits to the banks at cost to stakeholders. Far bigger fish to fry, if the Commission digs deep enough.
Wow, are you wearing your tin foil hat for when the aliens try to scan your brain
Ok Mr Whiteley, what do you think they will find if they dig further and look into the union funds? Things might get real interesting then.
The banks will win again, even though they mostly created the mess. Politicians are so stupid, the banks asked Turnbull for the royal commission for a reason. The result will be mortgage brokers will end up with the same best interest duties and education requirements that financial planners have. The result will be further vertical integration in the mortgage broking space as brokers try to adapt to the new regulations while trying to run some type of profit. Politicians and ASIC will slap each other on the back saying they have cleaned up the industry and the banks will continue to write the exact same level of loans without having to pay mortgage brokers. Don’t believe me? Have you seen any reduction in insurance premiums following the LIF implementation? Advisers are being paid less, clients are paying the same (if not more) and the FSC, made up primarily by the banks, are laughing all the way to the bank, literally.
May I be bold enough to suggest that if Aussie brokers had a full Best Interest Duty they might find it necessary to recommend very few CBA or other Big Four loans. Begs the question why did CBA buy Aussie if not to “verically integrate” third party distribution despite the obvious risk of “conflict”. This Royal Commission should be seeking out all inconsistencies between rhetoric and actions and require explanations. There is little doubt that the big banks have an agenda and we simply do not know what it is.
Yes some brokers are dodgy as, but was there ever any doubt that the royal commission would end up being directed to the small financial services businesses that aren’t shielded through lobbying and rely on associations with no backbone? I was reading this morning that ASIC believes 75% of advice given doesn’t meet BID. Brace yourself.