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ING last week announced it would waive clawbacks where a property is sold between 12 and 18 months after settlement, acknowledging such sales are often outside a broker’s control.
While the move has been broadly welcomed, brokers told Broker Daily the changes expose a deeper problem with an industry-wide clawback framework they say is overdue for overhaul.
The calls for change follow the FBAA’s recent submission to the Australian Treasury’s consultation paper on unfair trading practices affecting small businesses.
As reported by Broker Daily sister brand The Adviser, the submission highlighted several systemic issues confronting brokers, including clawback mechanics, net-of-offset calculations, channel conflict, and referrer arrangements.
‘Model is broken’
A common criticism among brokers of the current clawback framework was that it places almost all of the commercial risk on advisers, despite many early loan discharges being triggered by circumstances out of their control.
“I think the current model is broken and well overdue for a rethink,” Mansour Soltani, director of Soren Financial, said.
“We do the work upfront, meet our compliance obligations, and put the client into the right loan. Then, if that client sells 14 months later because they got a job transfer, went through a separation or their circumstances changed, we hand back commission we’ve already earned and often already paid tax on.”
Soltani said that at one point, he had three clients going through separations in one month, which cost his business $17,000 in clawbacks.
“Once you factor in the cost of writing the deal, there are files where you end up working for free or actually out of pocket,” he said.
“No other profession gets paid for completed work and then told to give it back two years later because the client’s life changed.”
Similarly, Bernard Desmond, CEO of Blank Financial, had experienced the sharp end of the current system, recalling a husband and wife who divorced just 11 months after settling their loan.
“Despite acting in the client’s best interests and doing everything correctly, I was required to repay 100 per cent of my commission through a lender clawback,” he said.
“To make matters worse, because the loan was on a fixed rate product, the clients were also charged substantial break costs by the lender.
“In this situation, both the client and the broker were financially penalised for circumstances that neither of us caused or could have prevented.
“Clawbacks should exist to deter misconduct or inappropriate lending – not to punish brokers and their clients when life takes an unexpected turn.”
Suzanne O’Connor, director of Dominion Finance, said that while her team worked to stay in contact with clients to help with repricing, clawbacks were sometimes inevitable in the current system.
O’Connor added that her team had identified at least five loans in the last 12 months that resulted in clawbacks.
“It’s hard on all brokers, however particularly for young brokers who don’t have a trail book that can absorb these clawbacks. It’s like two steps forward and one back.”
ING earns praise, but brokers say more needs to be done
Against that backdrop, ING announced it would remove clawbacks where a secured property is sold between 12 and 18 months after settlement, while also introducing a simplified commission structure.
The reforms were widely welcomed by brokers, although many said they represented only the beginning of the changes needed.
“I think it’s a step in the right direction and credit to them for doing something rather than just talking about it,” Soltani said.
“But I’d be honest and say it doesn’t go far enough... it only covers property sales, so if the client refinances or pays out for another reason in that window you’re still exposed, and the first 12 months are untouched. It’s more of a trim than a fix.”
Kit Johnson, director and franchisee at Aussie Forest Lake, said that while he welcomed ING’s reforms, their scope and scale would be limited.
“In all the loans I’ve written, I honestly can’t think of a single clawback that this specific ING policy change would have avoided. I’m sure there are examples, but suspect they would be statistically insignificant,” he said.
“The announcement is a positive acknowledgement that the current system isn’t perfect, but it doesn’t address the circumstances that account for the vast majority of clawbacks experienced by brokers.”
Calls grow for broader industry reform
While brokers praised ING for taking the lead, many said the industry should now use the announcement as an opportunity to revisit the clawback framework more broadly.
Desmond said the sector should move towards a more balanced and consistent approach across all lenders.
“I believe the industry should move towards a more balanced and consistent clawback framework across all lenders,” he said.
“In my view, there should be no clawback where the loan is repaid due to genuine life events such as property sales, death, relationship breakdown, financial hardship, or relocation.
“There should also be a shorter clawback period overall, with a consistent industry standard rather than different policies across each lender, and recognition that where a broker has acted appropriately and in the customer’s best interests, they should not be financially penalised for circumstances beyond their control.
“Ultimately, clawbacks should be designed to discourage poor behaviour, not punish brokers who have done the right thing.”
Soltani said that clawbacks should be capped at 12 months rather than 24 and that they shouldn’t apply where the discharge is genuinely outside a broker’s control.
“If a lender wants to protect itself against churn, fair enough, but a client selling their home or having a life event is not churn,” Soltani said.
“The lender also has other revenue opportunities that they can use to hedge against clawbacks, we, the brokers don’t.”
Johnson added that any starting point for restructuring the clawback system should rest on a “fairer allocation of risk.”
“Brokers should only be exposed to clawback where there is evidence they have contributed to an early loan exit through inappropriate advice or conduct,” Johnson said.
“If a customer refinances because their lender is no longer competitive, sells due to changing personal circumstances, or exits because of genuine hardship, the broker should not be financially penalised for events completely outside their control.
“Ultimately, clawbacks should reflect broker behaviour, not customer life events.”
[Related: Brokers want a regulatory standard for clawbacks]
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