The Royal Commission circus has come to an end. Some good things will be achieved in cleaning up behaviors in the industry, yet with three volumes of findings, it seems that mortgage broking is one issue that remains misunderstood. Here are my thoughts on what’s missing.
In Australia, for some reason we expect insurance companies and banks to do the impossible and provide objective advice.
However, their first loyalty is always to get the best possible return for their shareholders. A bank will always offer customers the highest interest rate and highest fees that they can get away with and still win the business — so why do we expect them to be different?
As much as they publicly pretend they don’t, banks really do need mortgage brokers.
Why? Because it’s a far cheaper and more efficient way for them to generate sales than to try and do it themselves. Sales generated through brokers avoids the huge cost of the team, advertising and resources needed to generate them. It’s therefore entirely reasonable that banks offer a discounted rate or pay a fee to a mortgage broker for generating the business.
Independent brokers are the solution, not the problem.
A mortgage broker will search the market to source the best rates and lowest fees from multiple sources, not just one bank’s product range. They’re ethically and legally obliged to provide the best result for the customer. The Productivity Commission gets it, both sides of politics get it, the public certainly gets it but unfortunately, the Royal Commission did not.
In my view, the Royal Commission outcomes need to include the following:
- Advice must be independent. Customers need to seek independent advice from accountants, financial advisers and independent brokers. The should stay away from service providers, banks and insurance companies with conflicting interests, who shouldn’t be allowed to provide advice in the first place.
- Advisors should be paid for the service they provide. Customers should have an option to elect for a bank or insurer to part pay some of the fees and have that cost incorporated as part of their finance transaction, or to pay the advisors directly themselves.
- Empower ASIC and the Ombudsman to take on the unconscionable behaviour demonstrated by the likes of AMP and CBA. Generational bad behaviour is entrenched within the big banks. This will keep happening unless major ethics and behaviour disruptors are introduced by boards to change the arrogant and outdated conduct. The regulators need to be empowered to fulfil their vital role.
- Mortgage aggregators must be independent. A number of mortgage aggregators are owned by the major banks and, quite simply, this shouldn’t be allowed to happen. Mortgage brokers using bank-owned aggregators should vote with their feet and leave.
- Every mortgage broker and financial adviser needs to achieve the industry minimum standard. The majority of brokers always act in their customers’ best interests. The few that don’t meet ongoing standards should exit the industry.
The other critical thing is that consumers need to accept that they are responsible for themselves and should not rely on ‘no cost’ advice from a bank or insurance company.
Now more than ever, it’s important to seek independent advice and surround yourself with the best independent accountants, brokers and advisors you can find, both personally and professionally.
To get your own independent advice for your personal or business needs, call Andrew Sutherland at Halidon Hill Finance, for a discussion on 03 7018 3270 or get in touch via email on firstname.lastname@example.org