Trail and NCCP changes: the Commission brokers should care about

Ongoing Productivity Commission inquiry could drive far bigger changes in broking then the Royal Commission

Trail commissions, white label lending and even the NCCP Act have become subjects of an ongoing inquiry into competition in the financial sector.

In early 2018, the Productivity Commission will release its draft report on competition and vertical integration. First announced in May this year, the inquiry is separate from the Royal Commission announced last week and, according to one expert, more important for brokers.

“I put out more hope or the Productivity Commission work, if they do their job properly and really look at vertical integration…and brokers are part of the problem there”, Martin North, principal of Digital Finance Analytics told MPA.

Already, submissions to the inquiry have recommended major changes to broking. “Ideally, trail payments should be removed”, suggested consumer advocate CHOICE. “At minimum, trail payments need close interrogation to ensure they are not discouraging brokers from switching consumers to better products.” 

The Consumer Action Law Centre recommended that brokers be required to act in the best interest of their client, rather than simply providing ‘not unsuitable’ loans.  

ASIC raised concerns about aggregators' panels: “the extent of real choice available to consumers can be obfuscated by the practice of ‘white-labelling’ and multi-branding. These arrangements can make the particular market appear more competitive than it is.”

High-profile endorsements of brokers

Despite some criticism, however, the Productivity Commission could provide a major boost for brokers.

As MPA reported in September, brokers were applauded by the Reserve Bank of Australia, APRA and the Australian Bankers Association in their submissions to the inquiry. 

The RBA wrote that: “Borrowers’ capacity to source the best deal and assess the benefits of switching providers has been assisted by the introduction of brokers and comparison websites.” 

Several banks also noted the size and importance of the broker channel as a positive development in their submissions.

Productivity Commission vs. Royal Commission

Both in its more focused scope and in its schedule, the Productivity Commission could have more influence over broking then the Royal Commission. 

The Productivity Commission will release its final report in July 2018, which the Government is required to table in Parliament within 25 days of receipt. The Royal Commission won’t release its interim report until September.  

This is important because the Royal Commission, under its terms of reference, cannot cover areas that are already subject to other inquiries; in this case competition.