‘Volume hurdles need to be banned’

“Some banks have stated that their scope to change such practices is constrained by market forces and an unwillingness to risk market share by upsetting established remuneration norms,” it said.

“That unwillingness may itself suggest that the relative remuneration available from banks may affect the behaviour of mortgage brokers.”

The FBAA’s Peter White told The Adviser that the bigger issue is volume-based incentives, where brokers are forced to settle a certain number of mortgages with one lender in order to keep their accreditation.

“The issue of over incentivising or additional incentives should be outlawed,” Mr White said. “You cannot incentivise volume. You can incentivise quality. But to incentivise volume puts a question over the risk of the outcomes that the borrower gets.

“What the banks need to do if they are truly honest with removing any sort of sales-related incentives, they need to get rid of volume hurdles. Volume hurdles need to be banned.

“If you’re with a particular lender and to maintain your accreditation you need to write $2 million in settlements and you’re sitting at $1.8 million, you’ll be looking for another loan otherwise you’ll lose your accreditation.”

Mr White says there are still a number of lenders that have volume hurdles in place.

“Aggregators will often have up to 30 lenders on their panels. But then why is it that the broker generally gravitates to three or four? Or half a dozen? Because they’ve got to maintain their accreditations with volumes otherwise they can’t deal with them,” he said.

According to eChoice general manager Blake Buchanan, some banks changed their commissions through the aggregators last year, putting volume requirements in place that have created an uneven playing field. 

“If an aggregator has a direct licence with one of the majors, why should a client that comes to one of my brokers and gets exactly the same outcome as they would by going to another broker, why should my broker be paid less?”

“The banks are remunerating volume broker groups, like some of the major aggregators, better than the same quality of broker that is with a smaller aggregator,” he said.

“I think that drives poorer outcomes for the third-party market in general.”

Asked whether brokers face volume hurdles with some lenders in order to keep their accreditation, Mr Buchanan said: “I think that has changed now. I don’t think there is much pressure. Last year a lot of the banks made the qualifying volume of settlements low enough that every aggregator would hit it… I think that needs to have some light shed on it as well.”

Volume bonuses

The interim Sedgwick Review, which was instigated by the Australian Bankers Association (ABA), noted that bonus payments for high-volume third-party channels are an additional payment, which “further incentivises the third-party channels and increases the risk of poor customer outcomes”.

“In addition to upfront and trailing commissions, some banks provide bonus monetary rewards to third-party channels,” it said.

“Examples of these include: 1. Monthly, quarterly and/or annual payments that may be limited to the ‘top-performing’ third-party channels (eg based on the number of sales/referrals from that third-party channel or funds under management for a set period); and/or 2. Ad hoc ‘good will’ commission payments at the bank’s discretion.”

Perth-based broker Rael Bricker says one problem facing the industry and one of the biggest cost issues for banks are brokers who write one deal with a lender once every few years, aren’t too familiar with that lender’s policy and put in a deal that needs to be reworked multiple times.

“Volume bonuses go to the aggregator, who does nothing. In reality I don’t see aggregators as adding real value to our industry. Only a few times have there been instances where the lenders have insisted that those volume bonuses are paid out to the broker,” he said.

Mr Bricker recalls two types of volume bonuses that have been passed on to brokers over the last few years. Both were from major banks. One insisted that the volume bonus be passed from the aggregator to the broker. Another major bank offered a “one off” volume bonus of approximately $15,000 for writing a certain level of business. However, Mr Bricker said the incentive was only available to premium brokers that wrote high volumes with the bank.

“The problem with volume bonuses is it does make it an incentive to write with that lender," he said.