Kenneth Hayne knew this was coming. He perfectly predicted the mortgage
broking industry backlash to his royal commission recommendations.
He knew that opposition would come quickly, that there would be talk of
"unintended consequences". He even predicted that brokers would say changes
to their sector would be a win for the big four banks, despite his
recommendations being designed to have the exact opposite effect.
Within hours of the final report being released, the mortgage broking
lobbyists were out in force claiming that interest rates will skyrocket,
that any change to their sector will kill competition and deliver a win to
the big banks. And as predicted, they took no time to lean on the vague but
ominous claim of unintended consequences.
Hayne could make his accurate predictions because we've seen this all
before. This is exactly how the financial advice sector reacted in response
to the same reforms that Hayne has recommended for brokers.
When faced with the shift from a commission-driven model to a user pays
model, the advice industry said it wouldn't work – advice would be too
expensive, customers wouldn't pay and the industry would be decimated.
When asked to sign up to a duty to act in their customers' best interests,
the industry said this would drive up costs and that in any case, advisers
had their customers' best interests at heart, even if they were paid by the
They argued the legislative drafting point by point, seeking the many
qualifications and carveouts that would later suffer under Hayne's
And all the way through the FoFA debate, the mortgage broking industry was
watching closely, knowing that at some point, it would be next.
Fast forward to early 2018 and the broking lobbyists knew they were in
trouble. Having been battered by ASIC's review of mortgage broker
remuneration and the Productivity Commission review of competition in
banking, they knew that the evidence before the royal commission was
stacked against them. So they decided to go around it. While the royal
commission continued its hearings, they were quietly walking the corridors
of parliament house and preparing their advertising campaigns.
And judging by the response of the government – which has already dumped
the royal commission's recommendation to abolish up-front commissions for
brokers within three years – that lobbying has paid off.
Some of Commissioner Hayne's greatest work is in his general
recommendations. Ban conflicted remuneration. Get rid of the the exceptions
and qualifications to the law that have allowed the problems we saw at the
royal commission. These reflect his careful analysis of previous attempts
at law reform and what has undermined them.
That's why the debate over mortgage broker remuneration is shaping up as
the parliament's greatest test. Because it's not just about the broking
industry. It's about how we regulate the whole system. If parliament bends
to industry lobbying on this issue, it will have failed to heed Hayne's
most important warning.
Alan Kirkland is the CEO of consumer advocate CHOICE.
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