ABA dumps Sedgwick’s commissions guidelines

From Mortgage Professional Australia.

Banks will be free to take their own approaches to broker remuneration after the Australian Bankers Association abandoned a key part of the Sedgwick Review.

Originally the ABA set out for banks to collectively develop “guiding principles” for the way banks remuneration brokers and their own staff. However, the preparation, consultation and finalisation of guiding principles will no longer take place, according to an update on the ABA’s work by independent but ABA-commissioned reviewer Ian McPhee.

Each bank will instead develop its own approach to commission, a move receiving scathing criticism from McPhee: “In taking this decision to vary its implementation plan, the industry has forgone the opportunity to establish guiding principles and demonstrate strong leadership in this area which has traditionally had a high profile, by building on the momentum for change stimulated by the Sedgwick Review and ASIC’s review of mortgage broker remuneration.”

Banks have also dropped their original plan to work directly with legislators to change broker remuneration, McPhee reported. Instead, they will work with brokers within the Combined Industry Forum and “proceed without the need for regulatory or legislative intervention to achieve the outcome of improved payments and governance practices.”

Clearing the path for the Combined Industry Forum

McPhee’s finding that the ABA has effectively sidelined its own report represents a huge victory for brokers.

Sedgwick recommended ‘guiding principles’ which included decoupling remuneration from loan size and bringing broker governance in line with that of retail bank staff.

Furthermore, Sedgwick recommended banks implement these changes by 2020, putting banks on a completely different timeline to that adopted by brokers and the Government following ASIC’s separate remuneration review.

Now banks can develop their own principles for remuneration, they will be free to take pragmatic approaches to commissions which better meet brokers’ expectations. It also opens up the intriguing possibility that banks who are more reliant on brokers – such as the non-majors – could adopt more generous remuneration arrangements than those with larger direct channels.

The signs of division 

MPA reported earlier this week that the Sedgwick’s proposals could soon be buried by the banks.

The first signs of division emerged during the Treasury’s consultation process following ASIC’s Review, where different banks took very different views to those expressed by Sedgwick.

Westpac explicitly criticised the use of flat fees, noting: “a flat fee commission structure could prompt an increase in split banking as brokers seek to maximise income by submitting smaller deals.”

The final straw may have been the announcement that ANZ CEO Shayne Elliott would be the ABA’s next chairman. Elliott told the House of Representatives last week the commission changes were ‘complicated’ and needed more work: deputy CEO Graham Hodges added that “the devil’s in the detail because clearly, it’s going to affect thousands of brokers.”

Westpac to refund some package customers, costs $65m

Westpac has announced it would provide refunds to some customers holding ‘packaged’ accounts after identifying that some customers did not automatically receive benefits to which they were entitled.


The issue affected approximately 200,000 customers who held Premier Advantage Packages with Westpac or Advantage Packages with St. George, BankSA, or Bank of Melbourne from 2010.

Under the terms of the packages, customers were entitled to a range of benefits. Customers automatically received discounts on core products such as home loans, credit cards, or transaction accounts. However, some customers did not receive discounts on ancillary products such as home and contents insurance and term deposits. The packages have since been simplified and all benefits are now automated.

Westpac Chief Executive, Consumer Bank, George Frazis, said: “At Westpac, our business depends on building long term relationships with our customers. So when we get something wrong, we want our customers to have confidence that we will put it right.

“When we identified these issues we started the process of putting things right for customers. We also notified ASIC.

“Importantly, customers do not need to do anything. Over the coming months, we will provide refunds, including appropriate interest, to any customers who may have been entitled to a benefit but weren’t aware they needed to opt in.

“Westpac apologises unreservedly for a process that did not suit customers. By automating the discounts, we have ensured that our customers will not be affected in this way again.”

Mr Frazis said that some customers with various business banking packages may also not have received some of the benefits they were entitled to. Affected customers will also receive refunds.

Refunds are expected to total approximately $65 million with an after tax cost to Westpac of around $45 million, which will be included in Westpac Group’s FY17 financial results.

Westpac will proactively contact eligible customers, but has set up a dedicated webpage to assist with any questions. Business customers can also contact their relationship banker directly.

Brokers ‘not recording the outcomes’ of IO discussions: ASIC

From The Adviser.

Brokers may be having the appropriate conversation with borrowers on interest-only home loans, the financial services regulator has said, but there has been some “pretty poor record keeping”.

The financial services regulator announced last week that it would “shortly” begin reviewing the loan files of brokers with a “high proportion of interest-only loans” as part of its work “to ensure that consumers are not paying for more expensive products that are unsuitable”.

The review was triggered by the fact that interest-only (IO) loans are now often more expensive than principal & interest loans, and it is therefore becoming “ever important now for lenders and brokers to explain and justify why they are putting people into more expensive loans”.

Speaking to The Adviser, Michael Saadat, ASIC’s senior executive leader for deposit takers, insurers & credit services, elaborated that while the regulator believes that brokers are having the appropriate discussions with consumers about the reasons for taking out IO loans, the record keeping on loan files has not been of a high standard.

He revealed: “In the past, I’d say we have seen pretty poor record keeping on that front, where there has been very little on the loan file which tells you why the consumer got that product. In general, when we have looked at loan files in the past, we have seen [responses to the question]: ‘What were the consumers’ requirements and objectives?’ In many cases, we see things like: ‘To buy a house’. That is pretty implicit, but it really doesn’t tell you too many things about what type of product, what type of loan, what type of rate, etc.

“So, our view is that although these discussions are happening… brokers are having these discussions, but they’re not recording the outcomes of those discussions. And it’s hard to prove that you’re meeting your obligations if you don’t have something on a file that shows why you have recommended a particular loan.”

What ASIC wants to see on IO loan files

Mr Saadat added that the next stage of the review into interest-only loans will be “getting these individual files and looking to see how consumers’ requirements and objectives have been documented on those files”.

He said: “If [borrowers] have been provided with an interest-only loan and they are an owner-occupier, we will be looking for a summary or an explanation on the loan file that describes why the consumer was provided with an interest-only loan. So, that’s really the key thing.”

Adding that ASIC “won’t be that prescriptive in terms of our expectations”, Mr Saadat revealed that what the regulator wants to see is “information on the file which is sufficient to explain why the consumer’s decision (or suggestion from the lender or broker) to go into an interest-only for an owner-occupier loan was the right one”.

The lending industry has already begun responding to some of these concerns, with Commonwealth Bank launching a new IO simulator to help brokers show customers the differences between these type of repayments as well as principal & interest repayments.

Mr Saadat told The Adviser that these types of tools, which delve deeper into why consumers need an IO product, help “make the consumer aware of some of the risks involved with going down a particular path”; for example, “the fact that at the end of that period, you do need to make higher principal and interest payments and, over the life of the loan, you may end up paying more interest as a result”.

Mr Saadat concluded: “Investors may have other reasons for getting an interest-only loan — they may be tax reasons, for example, whereas those reasons don’t necessarily apply to owner-occupiers. And that doesn’t mean that owner-occupiers should never have been given an interest-only loan. Of course, there will be cases where that still is appropriate. We just want to make sure that it is appropriate and that you’re documenting the reasons for that.”

The regulator’s crackdown on IO loans has begun to bite, according to some industry data. New data from Mortgage Choice has revealed that there was a 60 per cent decline in interest-only mortgages over a period of just six months.

According to Mortgage Choice’s latest home loan approval data, the proportion of interest-only loans written by the brokerage dropped from 35.95 per cent in April 2017 to 14.64 per cent in September 2017.

CEO of Mortgage Choice John Flavell said that the “significant decline” was a result of lenders hiking rates for these loans.

ANZ Alerts Customers They Are Turning Off Paper Statements

ANZ customers are receiving emails advising that the bank will turned off paper statements, unless customers click on the link to retain paper distribution. And there is a short cut off date beyond which you need to log into your account to set preferences. Asking to click on a link from an email is in my view inept, in the era of spam or worse, this is not good practice.

This forced migration may save the bank costs, and for some will be convenient, but for those who need physical statements for audit purposes, this is a problem. In addition, people who are not regularly online (yes there are still many who do not use email regularly, even if they are social media), may miss the change and discover an absence of statements down the line.

We wonder if the ANZ will start to charge for paper production later, we hope not, as this would be a further degradation of service.

It seems to me, the bank should have worded its communication more positively, because this comes across as a high-handed action, without taking customer needs into account. One more example of poor culture.

It is probably true that some would be too lethargic to make the switch to digital statements, without a prod, but this approach from the ANZ will be seen by many as just another example of them not thinking about things from a customer’s point of view. It shows that bank has a long way to got to win back customer favour.

A better way would be to incentivise people to switch by sharing some of the cost savings with their customers who elect to go for online statements.



ANZ CEO Shayne Elliott next Chairman of the ABA

The Australian Bankers’ Association today resolved to nominate ANZ Chief Executive Officer Shayne Elliott as Chair at its Annual General Meeting in early December.

Mr Elliott will succeed current Chair of the ABA, National Australia Bank Group Chief Executive Officer Mr Andrew Thorburn.

Commenting on the nomination Mr Elliott said: “The banking industry is working hard to build trust with customers, the community and with federal and state politicians on all sides. While we have made significant improvements in recent times, rebuilding community trust is a long-term issue and change within the industry needs to be bolder and faster.

“I look forward to making a positive and progressive contribution as the industry continues with the important task of delivering sustained change which delivers better outcomes for customers and helps rebuild our reputation.

“I would like to thank Andrew Thorburn for his stewardship of the ABA during this time and I look forward to building on his strong legacy of industry reform,” Mr Elliott said.

ABA Chief Executive Anna Bligh welcomed Mr Elliott’s nomination.

“Shayne has a long and distinguished career in banking and will bring considerable energy and commitment to the transformation process led by Andrew,” Ms Bligh said.

“The industry is currently undergoing the greatest program of reforms that banking has seen in decades. It’s vital that this continues and that we work to rebuild trust and better service the needs and expectations of the community,” she said.

By convention, the Chair of the ABA rotates between the Chief Executive Officers of the major banks. With the CEO succession announcement at the Commonwealth Bank in 2018, the next organisation on rotation is ANZ.

“For the sake of continuity it was decided to bring forward Mr Elliott’s term rather than seek an alternate chair,” Ms Bligh said.

“There are a number of reviews and reforms to be introduced in the coming year, so consistency is important. I am looking forward to working closely with Mr Elliott in his new role,” she said.

Mr Elliott’s term will begin after the ABA’s Annual General Meeting in December.

Branch tellers not rewarded for sales – CBA

Commonwealth Bank has announced further changes to the way   frontline staff are remunerated, increasing the focus on customer service and rewarding branch staff for delivering better customer outcomes, not financial outcomes.

The nation’s largest bank and branch network will move approximately 2000 customer service representatives, also known as tellers, to a new remuneration plan focused on the individual’s contribution to providing superior customer service. Any links to financial measures have been abolished.

Commonwealth Bank Executive General Manager, Angus Sullivan, said: “This change will reward our tellers for continuing to provide superior service to the millions of customers we serve around the country.

“We have been listening to our customers and this is another step to ensure banking is fairer, simpler and more transparent. Customers can be confident that our tellers are not being paid to sell them products.

“The new remuneration plan will support and encourage our teams to have better quality conversations with customers, understand their needs and provide the best possible service.

“This will further strengthen our customer focus and align the way we reward our people with industry standards and community expectations.”

These new measures will be backdated to 1 July 2017, the start of the current CBA performance period, removing all financial measures from individual performance.

In addition, close to 200 Bankwest branch tellers will also move onto a customer-focused remuneration structure from 1 October 2017, the start of the Bankwest performance period.

Commonwealth Bank has already made a number of changes moving away from sales-based incentives and recognition programs, and towards values-based rewards.

Mr Sullivan said this is another example of our commitment to implement all Sedgwick Review recommendations ahead of the 2020 deadline.

“We understand that there is always more to do, and we have been actively participating in the independent review by Mr Sedgwick and the Australian Bankers Association,” Mr Sullivan added.

No maths formula for rate repricing: Westpac

From Australian Broker.

There is no document or formula that exists behind Westpac’s decision to raise interest-only loan rates in light of lending speed limits imposed by the Australian Prudential Regulation Authority (APRA).

Instead, the bank has said differentiating rates between interest-only and principal and interest loans have been made as a “judgment”.

These claims came to light when Westpac’s CEO Brian Hartzner and chief financial officer Peter King faced the House of Representatives Standing Committee on Economics in its review of Australia’s four major banks in Canberra yesterday (11 October).

The bank made estimates around what the size of the gap between IO and P&I rates would be, Hartzner said. While forecasts were made around these changes, it was difficult to see exactly what would happen as it was impossible to accurately guess how many customers would switch mortgage types.

“It’s not a mathematical formula, it’s a judgment,” he said.

While there was no physical documentation that exists around different price points, Hartzner admitted the bank would have modelled around profitability and rate changes.

“Obviously we consider commercial issues in the things we do.”

When committee chair David Coleman questioned whether regulation was being used to boost bank profits, Hartzner outright denied this.

“I would reject the idea that compliance is a profit centre.”

Westpac spends $300m to $400m per year on compliance – fees which the bank was not going to recuperate, he said.

Profit was not a primary driver for these changes, he said, stressing that the main push was to manage Westpac’s balance sheet.

At the moment, around 50% of Westpac’s existing loan book consists of IO loans.

Hartzner’s message to borrowers was simple.

“Switch to a principal and interest loan. It’s cheaper.”

‘Yes, we repriced the back book’: ANZ defends rate hikes

From The Adviser

ANZ chief executive Shayne Elliott CEO has explained how it was a first mover on mortgage repricing and why it made a decision to hike rates knowing full well that its customers could move to another lender.

He appeared in Canberra on Wednesday (11 October) where he answered questions before the House of Representatives Standing Committee on Economics, commonly known as the major bank review.

Committee chair David Coleman MP asked the ANZ boss why the group increased rates for existing loans earlier in the year when APRA’s 30 per cent interest-only cap was for new lending only.

“We run a business,” Mr Elliott said. “We need to make sure that it is prudent and that we identify risk and price for it appropriately while still providing a good, decent service to our customers.

“We started changing our approach in terms of lending standards, policy and pricing well before APRA put in place its speed limit. In fact, our first changes around interest-only started in April 2016. We made policy changes, we have reduced the amount of time people can have interest-only, and we have reduced the maximum LVR. That was well before [APRA’s speed limit] because we assessed that the risk in that book was changing and that we needed to be mindful of that.”

Mr Elliott said the first pricing changes the bank made were on 24 March, a week before APRA’s interest-only speed limit came into place.

“Subsequent to the speed limit we came out and reduced rates, we were the first. We reduced rates for people paying principal and interest and we increased others. We did that not knowing what our competitors would do and not knowing what the customer behaviour would be. But we wanted to reward customers who repaid principal, because it is the right thing to do, and we wanted to give them the right signals to move.

“Yes, we repriced the back book but, we also gave price cuts to the back book as well.”

ANZ CFO Graham Hodges added that the bank also introduced its lowest ever fixed-rate at 3.88 per cent for P&I borrowers.

Mr Coleman argued that it is “disingenuous” for a bank to tell its customers, who are not impacted by APRA’s regulatory action, that the bank has determined that it is good for them to move to P&I.

“First of all, we gave people a four-month notice period,” Mr Elliott said. “Whether that’s to move with us or a competitor. Also, when people come to us and asked for an interest-only loan, we assess them on the basis that they can afford to pay P&I from day one. We do assess people’s ability to be able to pay the principal.”

Mr Elliott said the bank modelled the impact of its pricing changes. Asked about the profitability of interest-only loans and the impact of repricing, the chief executive explained that the answer depends on customer behaviour.

“It depends what customers do,” he said, adding that there was an assumption in Mr Coleman’s question that all customers stay with ANZ and don’t move.

“About 10 per cent of our customers with a home loan choose to leave us and go somewhere else each year. There are a lot of factors.

“We absolutely ran an analysis and looked at the fact that by reducing P&I loans by 5 basis points it would come at a cost. That’s about two thirds of our customers who received the benefit of a rate cut.

“We were first. We did that not knowing what the competition would do and at a risk that a lot of those customers would vote with their feet and go somewhere else, or vote choose the fixed-rate, which is a much lower margin product.”

Interest-only loans currently account for approximately 34 per cent of ANZ’s total mortgage portfolio.

Westpac also faced tough questions from David Coleman in Canberra yesterday. Chief executive Brian Hartzer told the committee that interest-only loans accounted for 50 per cent of the Westpac mortgage book.

CBA goes into damage control over claims of primary school ‘kickbacks’

From The New Daily.

The Commonwealth Bank of Australia has promised to scrap a controversial practice that sees it pay primary schools a commission for every student that signs up to its Dollarmites program.

The decision came just hours after consumer advocacy group CHOICE launched a scathing attack on school banking programs, saying banks should be banned from “flogging their products” in schools.

CHOICE was particularly critical of what it called “kickbacks” paid to participating schools.

But within hours of CHOICE’s attack, CBA – in an effort to fend off yet more bad press – had issued a statement of its own vowing to abolish these so-called “kickbacks”.

“We have heard CHOICE’s concerns about these payments and will engage with the schools, P&Cs [parent and citizens associations] and consumer groups to introduce a change to the way payments are structured from 1 January 2018 that no longer links the payment to the value of students’ deposits,” the statement read.

The bank stopped short of scrapping payments to schools altogether, arguing some sort of payment was necessary to cover the costs to schools of offering the program.

How the Dollarmites program works

CBA’s School Banking program allows primary school children to set up bank accounts through their schools.

The program appeals to children using colourful branding, including a gang of cartoon school kids called the ‘Dollarmites’, gifts, and games aimed at improving financial literacy.

It also incentivises schools to participate by paying them a 5 per cent commission on every deposit up to $10.

Around 4000 schools and 320,000 school kids across Australia are signed up to the program.

The bank sells it as a “fun, interactive and engaging way for young Australians to learn about money and develop good saving habits”.

But in a statement on Thursday, CHOICE chief executive Alan Kirkland painted the program in a more critical light, saying it was a way for the bank to gain “unfettered access” to “flog their products” in schools.

“Rewarding children for saving with cheap toys easily transitions to rewarding young adults with ‘special’ offers of high-interest personal loans and credit cards,” he said.

“It is time to take banks out of financial literacy education, and to stop them from paying schools commissions to flog their products.”

The call was part of a submission to the Productivity Commission’s ongoing inquiry into competition in the Australian financial system.

Of the big four banks, Westpac is the only other that operates a schools program.

A spokesperson for Westpac told The New Daily it does not pay commissions to schools.

ANZ and NAB both said they had no presence in schools.

CBA desperate to avoid more bad press

The Commonwealth Bank’s lightning-quick response comes two months after the bank was embroiled in a money-laundering scandal – its third major scandal of the decade – and reflects the CBA’s growing eagerness to avoid any bad press.

In August, anti-money laundering regulator AUSTRAC launched civil proceedings against CBA in the Federal Court for an alleged 53,700 “serious and systemic” breaches of money laundering and counter-terrorism legislation.

The allegations came on top of similarly high-profile scandals in the bank’s financial advice and life insurance businesses, all of which occurred under the watch of chief executive Ian Narev.

Since the AUSTRAC revelations, CBA has taken a number of bold steps to improve its public image – including announcing the deferred departure of Mr Narev next year, and scrapping ATM fees for non-customers.

Labor’s plan to hold a royal commission into the banking system if it wins the next election – which current polls suggest it will – is putting additional pressure on the banks.