FBAA reveals reduced ASIC fees for brokers

The Finance Brokers Association of Australia (FBAA) has revealed that the Australian Securities and Investments Commission (ASIC) has given finance brokers an early Christmas present with confirmation their credit representative licence fees have been reduced as a reward for the sector’s professionalism.

The financial services regulator has reduced the cost to act as a credit representative for brokers from $104 to just $16.48 annually due to the decreased cost of enforcement.

FBAA managing director Peter White said the confirmation of reduced fees means brokers are being rewarded for doing the right thing by their clients.

“ASIC operates on a cost recovery method which means they only charge fees that cover the costs of enforcing to the industry.”

The total cost of legal enforcements against mortgage brokers started at $15.6 million dropping to under $9.1 million mid-year before being revised this month to $5.74 million, nearly a third of the original cost.

Mr White said the turnaround for brokers comes as the royal commission, ACCC, ASIC and others have found banks are failing borrowers amid a culture of bad behaviours and a lack of transparency.

“While banks have been exposed for their poor practices, brokers are being recognised for being best of breed. The professionalism of the industry and the ability of brokers to deal with any poor behaviour swiftly is paying dividends.

“The standard of our brokers and our own monitoring practices have improved markedly and that is why ASIC has revised its fee schedule. We hope they will continue to be able to reduce the fees as we improve what we do and demand the high-standards that borrowers expect and deserve,” Mr White said.

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FBAA responds to interim royal commission findings

The Finance Brokers Association of Australia (FBAA) has lodged its response to the interim report of the royal commission into the banking, superannuation and financial services industry.

The commission tabled its interim report on September 28, 2018 providing interested parties with a month to make submissions in response.

FBAA managing director Peter White said their substantive submission focuses on disclosure obligations, remuneration structures, compliance with existing laws, and the commission’s call for greater regulation.

“The association agrees with the commission’s interim report that improvements can be made but we also agree that new laws or regulations aren’t necessarily the answer.

“Some of the responses to the royal commission have verged on emotional or value proposition statements, and while most have merit we have deliberately taken a strong legal approach to our language to ensure our messages are clearly understood by the commissioner, a High-Court Judge.”

One area addressed in the submission is the issue of full disclosure of remuneration paid to brokers by financiers. The FBAA submission rejected any suggestion of a need for further disclosure measures.

“Already brokers have to provide lengthy disclosure documents, while the National Consumer Credit Protection Act 2010 (NCCPA) ensures clients are well-informed about the costs and commissions.

“We don’t want brokers to be forced into even more documentary disclosure and that view accords with ASIC’s findings that consumers can disengage because of information overload.”

The association takes on the issue of broker remuneration concluding that the current structure is superior to other models and any change may be detrimental.

“We are concerned that a change to the existing structure without fully understanding the impact of any proposed model may simply disrupt a stable and important profession with no corresponding improvement,” Mr White said.

“The majority of misconduct has been due to market participants failing to follow existing laws. This shows that further reforms should not be contemplated until there is compliance with current laws.”

The FBAA disputes claims that lenders paying value-based upfront and trail commissions is a possible breach of the NCCPA.

“The relevant section does not prohibit conflicts of interest, only those causing disadvantage, yet the term disadvantage is imperfect and can’t be relied on.

“It’s our submission that the laws already in place strike an appropriate balance.”

The final report from the commission is due by February 1, 2019.

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Borrowers beware on interest only loans

With reports that almost one million Australian homeowners’ interest-only repayment arrangements will expire from January, the national peak body representing finance brokers says it’s a timely reminder for borrowers to know what they are getting when signing up in the first place.

Peter White, executive director of the Finance Brokers Association of Australia (FBAA) says while interest only loans can be excellent for the right people at the right time, too many borrowers get caught up in the moment, forgetting that home loans need to be repaid eventually.

“At some stage it needs to be dealt with by either entering into a principal and interest loan, refinancing, rolling into another interest only loan if available, or selling the asset,” Mr White said.

“It may seem obvious but before entering into the loan, borrowers need to clearly understand that with interest only loans they are not paying off their loan, and at some point they must begin to.

“Lack of knowledge is a big issue, and it causes unnecessary stress.”

Mr White does believe interest only loans are viable for those bridging a loan or investing, but doesn’t recommend it as a structure for mum and dad borrowers with no gearing needs.

He said finance brokers work closely with borrowers in this situation until the interest only period finishes, to “help minimise any shocks and ensure borrowers are financially prepared to come off the payments and look at their next options.”

“The real issue is that anyone with this type of loan qualified for it, as being able to service that debt on a principal and interest basis to start with.

“In principle, they can afford the repayments but with flat wages and increasing expenses therein lies the challenge.

“The takeaway is to enter into the loan with your eyes wide open, and seek assistance throughout the period to ensure you work towards the best outcome to suit your individual financial situation.”

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International Mortgage Brokers Federation launched in Canada

A world-first international federation of mortgage brokers has been launched in Canada with the Finance Brokers Association of Australia (FBAA) playing a pivotal role.

The International Mortgage Brokers Federation (IMBF) is an initiative of the Canadian Mortgage Brokers Association (CMBA) and the FBAA.

FBAA executive director Peter White said the planning started for an international body two years ago, and will represent all mortgage and finance brokers.

“I was doing the FBAA’s global research paper in 2016 after discovering that Canada was also looking at establishing a collaborative international group of finance brokers.

“One of the catalysts for creating the federation was the realisation that finance regulators in each country had been talking to each other and sharing knowledge and regulatory outcomes, and we felt we would benefit tremendously by doing the same thing.

“We worked with the CMBA to form the IMBF on a platform of sharing ideas, referring clients, gathering market intelligence, identifying trends, and keeping up to date on regulatory matters and industry best practices.

“From today the IMBF is the leading global forum for bringing the international mortgage broking community and its suppliers together to collaborate.”

Mr White said beyond collaboration, the federation will become a strong body to influence regulation and legislation through global advocacy.

“The organisation also aims to develop and adapt new and existing standards that enhance the industry and promote strong ethical practices by its members,” he explained.

The federation also creates the first global referral network where brokers can refer clients overseas if they move, yet still stay in contact with their client through the new relationship.

The composition of the federation is one association per country and includes Canada, Australia, the USA, New Zealand, and the United Kingdom. Other counties who use third party origination networks to distribute loan products have been invited to join.

A board of governors has been established and the executive team will be announced shortly. The federation’s website has been established at www.imbf.co.

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Brokers urged to check professional indemnity insurance cover

The Finance Brokers Association of Australia (FBAA) has warned brokers to review their professional indemnity (PI) insurance in response to an increase in award limits to be introduced by the Australian Financial Complaints Authority (AFCA).

In May the minister for revenue and financial services authorised Australian Financial Complaints Limited to establish and operate the AFCA.

The AFCA board has been working with the Credit and Investments Ombudsman board in the transition to the new body while also collaborating with the Superannuation and Complaints Tribunal and the Financial Services Ombudsman. The new arrangements are in place from November 1, 2018.

FBAA executive director Peter White said AFCA has forecast an increase in the award limits from the current maximum of $323,500 for any one claim, to $500K.

“This change means that unless brokers review and potentially increase their PI insurance levels they may not be adequately protected should a claim of this type be made after November 1,” Mr White said.

However, he said brokers who have policies with FBAA’s preferred PI Insurance provider, Insurance Advisernet Australia, will be protected.

“We have received written confirmation that the ‘Finance Brokers PI Plus Policy’ with Insurance Advisernet will be altered to cover EDR awards up to $500K for any one claim or up to $1M in the annual aggregate for all new policies and/or renewals issued as from November 1, 2018.”

“It means any existing member’s policies that fall due for renewal after this date will benefit from an automatic increase to the above limits for no additional premium charge.”

Mr White encouraged brokers with questions to contact Insurance Advisernet national product manager, Darren Loades by phone on 07 5538 7655 or email dloades@iaa.net.au.

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FBAA disputes mortgage broker payments breach the NCCP

The Finance Brokers Association of Australia (FBAA) has rejected claims in the royal commission interim report that lenders paying value-based upfront and trail commissions could be in breach of section 47(1)(b) of the National Consumer Credit Protection Act (NCCP).

FBAA executive director Peter White said the interim report did not find any systemic evidence to suggest that conflict of interest in the payment of commissions to brokers directly disadvantages clients.

Mr White also took exception to any suggestion that loans sourced for clients with higher leverage are in themselves a bad thing. “It’s the brokers duty to put the client’s interest first and to meet, if not exceed, their expectations.

“In meeting client needs brokers are often asked to source higher leverage loans to appropriately support their needs, taking into account a client’s debt levels and loan to valuation ratios.

“It’s a broker’s ability to source a specific loan product to suit their client’s specific needs that gives us a market advantage.”

In his interim report commissioner Hayne said licensees must make adequate arrangements to ensure clients are not disadvantaged by any conflict of interest that may arise in relation to credit activities.

Mr White said adequate arrangements are already in place and so are penalties.

“The commissioner pointed out that a breach of the NCCP is not an offence or open to civil penalty. I would argue that the cancellation or suspension of a broker’s licence by ASIC is a substantial penalty in itself.”

Mr White said brokers were at the forefront of efforts to improve service delivery and remuneration structures and have been working collaboratively with regulators.

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FBAA and Peter White nominated for prestigious national awards

The Finance Brokers Association of Australia (FBAA) and long-serving executive director Peter White have been shortlisted as finalists in the prestigious Optus My Business Awards to be announced on November 9 in Sydney.

Mr White has been nominated in the category of Business Leader of the Year while the FBAA has been nominated in the category of Finance Business of the Year.

The Optus My Business Awards cover 28 categories acknowledging best-practice within a particular industry sector as well as individual business leaders. Award organisers say 2018 saw a record number of submissions for Australia’s longest-running SME awards program.

Mr White said he was honoured that the FBAA was recognised as a finalist in the Finance Business of the Year category. “The FBAA has a focus on improving standards, training and education in this industry so that the clients of our members get the best possible service available.

“To be recognised as a finalist in this category is due recognition that the association is doing its job in representing the interests of more than 8500 finance and mortgage brokers and working with regulators and government to improve the industry.”

Mr White said he was humbled to be shortlisted for the Business Leader of the Year award and said he accepted the nomination on behalf of all his colleagues at the association.

“I work with a dedicated team of people and they support everything I do. Just to be nominated was an honour and to be shortlisted was a surprise.”

Mr White has vast experience in banking and finance spanning over 38 Years, which includes his most recent admission onto the advisory board of the Small Business Association of Australia. He has held FBAA roles of NSW president, national vice president, national president, chairman of the board of directors and chief executive officer.

The Optus My Business Award winners will be announced at a black-tie awards dinner on Friday 9 November at The Star, Sydney.

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