The Inquiry has been far reaching, with a strong emphasis on improving consumer outcomes.
Interestingly, it has only given fleeting commentary on mortgage broking, considering approximately 50 per cent of consumers are now sourcing their mortgage finance through this channel.
So while not specifically targeting brokers, several of the recommendations may impact the way brokers have traditionally operated.
Specifically, the recommendations on the digitalisation of customer ID, income verification and increased participation in positive credit reporting should create a paradigm shift in process efficiency.
However, I expect proprietary networks of the ADIs will seek to optimise this to their advantage. It should create relativity between channel processing costs, which will refocus the difference in channel economics back to the commission debate. Considering the implications of the recommendations on increased capital on margins and the highly competitive pricing environment, how sustainable are the recent upward movements in commission? This is not an immediate threat; however, I would guard against complacency.
The importance of competency and continuing education for all advisers involved in financial services has been emphasised in the final report and again, I firmly believe mortgage brokers will eventually be required to achieve higher standards in professional qualifications.
One of the core strengths and competitive advantage the third-party channel has over proprietary is the depth of knowledge and skill at being able to interpret customer financial needs and provide independent advice as to an appropriate lender. The more complex the financial needs, the stronger the broker penetration of this segment, so a heightened need for education.
The risks associated with SMSF lending that the report highlights are significant and this is a wealth creation /financial planning segment that brokers have been increasing their participation in.
My view has always been the ‘barriers to entry’ in mortgage broking lack professional rigour and the governance and content around ongoing education is an opportunity for the industry to seize
With respect to vertical integration and disclosure, I think these recommendations could gain support resulting in increasing pressure for brokers to disclose pricing and fee incentives around product recommendations of their parent, particularly the ‘white label’ offerings, rather than mainstream home loans that are available in all channels.
With respect to the risk-weighted capital recommendations, I’m not convinced it will change the landscape for mortgage brokers as far as increased competition - it is not just about price.