The Royal Commission and its failure to address the how & why

There were certainly some surprises within the recently-released Royal Commission report into Misconduct in the Banking, Superannuation and Financial Services.

In particular, we have been surprised and disappointed by Commissioner Hayne’s recommendations to abolish lender-paid broker remuneration altogether and to transfer this ‘obligation’ to the public.

Of course, all processes and remuneration structures can be improved; but the implication in these recommendations and the wording used to support them is that the current structure is a significant reason for the misconduct within the broader financial services industry.  We find that a very difficult premise to accept.  Sure…there are examples of poor broker conduct, but overwhelmingly over the past decade Finance Brokers have been the driving force behind broader consumer choice, lower costs, product innovation and better access to finance for all Australians.  With 59% of all recently-settled home loans written via a broker, the Australian public seems to be happy with brokers too!

By recommending these changes, Commissioner Hayne is jeopardising an industry that Australians love and one that employs tens of thousands of Australians; including 20,000 self-employed brokers.
He is inadvertently pushing the public and the economy back in time; a time where credit provider options were limited, interest rates were higher, service levels were terrible and unless the consumer fitted the profile of ‘Joe Average’ they struggled to get access to any finance at all.

Whilst the Royal Commission found minimal issues within the Mortgage Broking sector; Commissioner Hayne has seen it necessary to recommend industry destroying changes!

Why didn’t the Commissioner focus on the how and why?

For example, how did we get here and why hadn’t the regulations introduced in 2010, via NCCP and overseen by ASIC, provide the protection to consumers it was designed to do?  Under NCCP, the Responsible Lending and Conflict of Interest requirements (in particular) should have provided adequate protection to consumers.

The Act came into effect on 1 July 2010 and from day one there has been a lack of guidance, advice and direction from ASIC.  This ambiguity has resulted in so many different interpretations, which has led to self-implementation and light-touch compliance such as ‘ticking a box’ and believing that compliance obligations were satisfied. Had ASIC done its job by educating, monitoring and enforcing NCCP, we are likely to be in a very different position now.  Furthermore, the industry has been crying out for support tools in their endeavour to ‘do the right thing’.

The conclusion reached by Commissioner Hayne should not have been to remove remuneration paid by lenders to brokers.  Instead, he should have enforced greater industry education and the clearer setting of expectations and enforcement powers by the regulator.  He noted that the current regulations were adequate as is, so how about being clearer and stricter in regard to issues such as upscaling of inquiries, validating client information, measurement of expenses, benchmarking, loan suitability and broker/client transparency.  It is our view that these are the areas that will drive better outcomes for all.

Now the above said, there is still a bit to be played out!  Although it seems highly possible the recommendations will be enacted; we shouldn’t get bogged down in the minutiae of what the end result will be.  One great and very relevant maxim that applies is “to worry about what you can control”.

So, what can you control?

We’ve seen throughout history is that it’s those people who take proactive and responsible action during times of uncertainty who will ultimately prosper. Whilst some of your competitors are paralysed by fear and uncertainty, here is your chance to get a step ahead.  To this end, there are 4 immediate steps we recommend for all Finance Brokers.  These will help you operate in the ‘here & now’ and ultimately help you to prosper in the long term:

  1. Review the relevant sections of the RC paper yourself; knowledge is power and we encourage you to read pages 54-88 of the RC report at a minimum. Click here to view the report.
  2. Add your voice to the discussion.  I.e. Share your opinions via social media, lobby your local politician and discuss the broader industry ramifications to family & friends.
  3. Diversify!  Never before is it more important to have a range of lending solutions available to your clientele and you can’t afford not to educate and accredit yourself with alternate lending solutions to the one you have relied on primarily over past years.
  4. Don’t let this report stop you from doing what you do so well!  There’s a long way to go before any of this potentially becomes reality, so continue to invest in yourself and your business and make it the best it can be!

We acknowledge it is difficult for Finance Brokers to access and understand the information and resources they need to grow successfully and compliantly, especially in today’s landscape. That is why SalesKey was founded; our purpose is to help finance brokers navigate through a complex and changing regulatory framework, develop innovative growth strategies, implement operational efficiencies and provide the latest information on relevant technologies.

We’re only a phone call away on 1800 954 488 and in these difficult times we’d love to partner with you to help create Better Outcomes for your business. You can also email us: info@saleskey.com.au.