Clawbacks No Longer Relevant: Finsure

Clawbacks are at odds with the best interest duty (BID) regulations which require finance brokers to act in the best interests of their customers and are no longer relevant for the industry, says leading aggregator Finsure Group.

Finsure CEO Simon Bednar said clawbacks were now unjustified when coupled with exemplary broker conduct and the best interest obligations upon brokers.

“Clawback is at odds with BID,” Mr Bednar said. “It has been around for just over a decade when the federal government banned lender exit fees which charged the borrower for exiting the loan within two years. The lenders simply renamed the fee and now charge the broker instead.

“There needs to be a discussion about the relevance of clawbacks given both the MFAA and FBAA’s own data has confirmed an average loan length of more than four years, a statistic which is backed by Finsure’s own portfolio data . Why is then clawback even relevant when the average life of a loan is more than four years?

“Given the development of mature data in the industry where broker conduct can be measured using data insights, why hasn’t the industry pivoted to reward good broker behaviour? Brokers with portfolios that perform and don’t incur excess churn should be rewarded and this can be demonstrated through data.  Data doesn’t lie.

“I look forward to the upcoming industry aggregator attestation program which will hopefully be an opportunity for aggregators to demonstrate and showcase their compliance frameworks and data analytics, further enhancing the argument that good broker behaviour should be recognised. Since the introduction of BID, brokers have been obligated to ensure their clients best interests are considered when recommending and placing a loan.” 

Cory Bannister, Chief Lending Officer and Senior Vice-President of La Trobe Financial, which does not have a clawback policy, said: “If a broker has completed the work to assist both their client and the lender, to appropriately review, assess and recommend a loan that is subsequently settled, they should be paid. The protection for lenders against ‘unnecessary churn’ or ‘gaming’ to generate additional commission is the BID legislation.”

Mr Bednar agreed: “Brokers do the work, and if they carry out their obligation under BID they should be rewarded, not penalised.”

Mr Bednar said data can be used to determine if the broker is a serial offender with refinancing less than two years into the life of a loan.

“I want to see an industry which supports brokers through the use of aggregator and lender data in a mature way and encourage industry discussion to achieve a way forward,” he said.