Brokerage slams bank involvement on broker comms

In a strongly worded response, mortgage brokerage Loan Market Group told the royal commission of the myriad benefits brokers bring to customers and competition in the finance industry, adding that Commissioner Kenneth Hayne has “given much weighting” to comments made by CBA’s former CEO, Ian Narev, suggesting that “broker remuneration creates poor customer outcomes”.

The group suggested that these comments were “conflicted” as the banks would “benefit significantly if broker remuneration was reduced”.

The Loan Market submission read: “Asking banks to design the future of brokers is perhaps the biggest conflict of all. It is like asking the fox to design the henhouse.

“It’s simple: the big banks will be the beneficiaries of a weaker broker market.”

The report later reiterated: “Asking banks to redesign the broker remuneration process is like asking the fox to redesign the henhouse.

“Banks have always been responsible for determining how they make credit decisions, who they lend to and who they decline. Brokers are the intermediaries and relate information to each party efficiently, honestly and fairly. Broker remuneration has had (and continues to have) nothing to do with how lenders make their credit decisions.”

The Loan Market Group went on to say that “the only entities that benefit from reducing broker commissions are the big banks”.

“[N]ot only would the banks get rid of competition and return Australia to a banking oligopoly, they would [also] boost their profits by reducing broker expenses,” Loan Market said.

“We find it frustrating that the commissioner seems to have placed such significance on this statement as proof of a proposition that is supported by such little evidence.”

The group argued that client complaints regarding brokers were lower than that for lenders, adding that “consumers refer and prefer to deal with brokers rather than lenders”.

“We submit it would be a disappointing outcome of this royal commission if the banks were rewarded, brokers were penalised and the consumer left to fend for themselves again,” the brokerage said.

The brokerage group went on to suggest that brokers spend up to 30 per cent more time on a loan file than before changes to living expenses came in, arguing that brokers are therefore “working harder for less remuneration”.

It suggested that should the royal commission result in any “significant increases in broker obligations”, then broker remuneration “should be increased so that these obligations can be discharged effectively and sustainably”.

Loan Market Group went on to outline the relative pros and cons of different remuneration structures in a bid to determine whether any could deliver “better consumer outcomes”, but it concluded that “alternatives to the existing remuneration model create their own conflicts that may well be worse than the current model, and some, we believe, are too damaging to competition or accessibility to low-income earners to be in the interests of customers”.

The brokerage concluded: “We believe the current remuneration structure strikes the best balance between the need to balance between a broker’s conflict of interest, good client outcomes and competition in the mortgage industry, and it will be strengthened by the CIF proposals.”

[Related: Major banks reveal thoughts on broker remuneration to RC]