Australian advisers told clawbacks are “unnecessary”

Australian mortgage advisers have been told there is no need for financial clawbacks to be imposed on them any more.

The comments came in a speech by Daniel Crennan QC, who's the former deputy chairman of regulator the Australian Securities & Investments Commission (ASIC).

Crennan said he did not believe clawbacks should be imposed since mortgage brokers had a “best interests duties” obligation in place.

This best interests duty was imposed by law last year and meant advisers in Australia had to prioritise several things when dealing with clients.

These included costs such as fees and interest rates which would be imposed on a customer. However, non-cost considerations also had to be taken into account, such as the general benefit to a person from following a certain course of action.

Crennan argued the requirement that advisers do the best they can for their clients meant they should not be penalised with a clawback from a bank later on.

Despite this argument, the Australian trade journal, The Adviser, said clawbacks across the Tasman had increased 30% in the past few years.

In fact, there is no indication that clawbacks will disappear from the Australian market any time soon, even though the Labour Party in Canberra said before the election it was “open” to discussing them.

Here in New Zealand, clawbacks are well established and look likely to persist.

That is because they recompense banks for losses incurred when people pay back a loan early.

LoanMarker adviser Bruce Patten said that fees paid to brokers were set at a level that made a specific loan profitable.

If that loan was changed before its expiry date, then banks might put in a claim to be compensated by a clawback of some of the fees that had been paid out if they were due to incur a loss.

Patten said this practice has been going on for about 30 years. It was about the banks'' ability to break even, when they had paid a commission to originate a loan.

“A lot of brokers in New Zealand are not happy about clawbacks,” Patten said.

“But personally, I have no issue with them, because if you look at it on a commercial basis, we are being paid to do a job, and if that job doesn't stay around for a certain period, it costs the bank money.”

Some advisers are unhappy about being liable for a clawback for a problem not of their making, such as a marriage split that leads to debts being paid off early in order to clear the decks.
“But that's just a cost of doing business,” Patten said.

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