The Combined Industry Forum is reviewing clawback arrangements within the broker remuneration model, with a recommendation for reform due by the end of the year, co-chair Mark Hewitt has confirmed.
In a webinar hosted by the Australian Finance Group (AFG) on Monday (17 August), co-chair of the Combined Industry Forum (CIF) Mark Hewitt revealed that a working group has been set up to review current clawback arrangements in the mortgage broking industry, with a recommendation due “by the end of the year”.
Mr Hewitt, AFG’s general manager of industry and partnership development, said the working group has been tasked with addressing potential impediments to compliance with the upcoming best interests duty.
“The CIF still believes that clawbacks are an important part of the overall remuneration structure, and that’s certainly a belief supported by regulators,” he said.
“However, the potential for conflict with the broker best interests duty is amplified due to the blunt nature with which they tend to be applied.
“The working group has been charged with examining this and looking at possible structural changes, with a view of reducing the potential for conflict.”
Last month, Mr Hewitt told the House of Representatives standing committee on economics that existing clawback arrangements could actually reduce, disincentivise or impede borrower switching.
“Currently, we have quite a blunt clawback mechanism where typically, a broker would be clawed back 100 per cent in the first year, and then 50 per cent thereafter up to year two, if the loan is refinanced or moved,” he said.
“That potentially creates a conflict when a customer might be looking at alternate products.
“Clearly, the broker has to act in the customers’ best interests, but there is the potential for conflict there because they may lose out if that loan is refinanced.”
The broking industry has been united in its push for clawback reform, with several stakeholders, including the Mortgage & Finance Association of Australia (MFAA), the Finance Brokers Association of Australia (FBAA) and a number of aggregators backing changes to the current model.
In its submissions to Treasury following the release of the federal government’s draft best interests duty bill, the MFAA recommended that the maximum clawback period be reduced to 12 months, and that the clawback percentage “steps down in a more linear manner”, from 100 to zero per cent over the clawback period rather than the current “all or nothing” approach, which it said is “inequitable”.
The FBAA echoed this sentiment in its submission, stating that while its first preference is for “clawbacks to be abolished”, it would back a move to reduce the clawback period to 12 months.
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Charbel Kadib is the news editor on The Adviser and Mortgage Business.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.
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