A case study published online by the dispute resolution service tells the story of two homeowners who successfully fought against a commission clawback after claiming it was unfair.
The two homeowners asked their adviser to arrange financing to fund a second home, refinancing their existing mortgage.
Their adviser told them to get a new mortgage from a second tier lender, as they could not meet the bank's stricter servicing test at the height of the Covid pandemic.
After a year, the homeowners refinanced with a bank, lowering their interest rates. However, they were hit with a clawback.
The adviser sent the homeowners an invoice for the clawback as the non-bank financing had been refinanced within two years.
The homeowners complained to FSCL about the $8,000 fee.
Upon reviewing the case, FSCL found that the adviser had given reasonable advice to move to a second tier lender last year.
It found that the adviser had properly disclosed the fee – but found the $8,000 figure "was too high for the work actually undertaken by the adviser in arranging the loan and refinance".
In an attempt to resolve the dispute, FSCL suggested the adviser slash their clawback to $4,000, "which would more reasonably reflect the actual work undertaken".
The homeowners were not satisfied, and did not agree to the terms.
The adviser then offered to lower the clawback to $2,000.
FSCL told the homeowners that this was a "good offer, given we would say the adviser was entitled to some of the fee, if we continued with our investigation".
The homeowners declined, and said they would only discontinue their complaint if the fee was waived entirely.
The adviser was forced to agree, and the investigation was closed.
Happening under the old regulatory regime, this dispute serves as a reminder for brokers to clearly disclose fees and clawbacks with clients and keep detailed records.
It is hoped that the new regime's increased reporting and transparency requirements will limit the number of future clawback disputes.
FSCL's view
The dispute resolution service called on advisers to clearly outline clawback terms at all times.
"If mortgage brokers/advisers want to recover the brokerage or commission clawed back by a lender from their former customers, they need to communicate this clearly.
"Ideally the fee and the circumstances in which it will be charged should be set out in plain language with an acknowledgement signed by the customer.
"We also expect to see some indication of the amount the customer can expect to pay and how the amount is calculated. Ideally, the fee should reflect the value of the actual work undertaken."
