The chairman of Bendigo and Adelaide Bank has said he was “surprised” that the roles and responsibilities of mortgage brokers have been called into question by the financial services royal commission.
Giving evidence to the financial services royal commission in its seventh and final round of hearings, chairman of Bendigo and Adelaide Bank Robert Johanson said that it was “clear” to him that brokers work for their clients, and not lenders.
In his interim report, commissioner Kenneth Hayne questioned broker agency, pointing to the Commonwealth Bank’s (CBA) broker accreditation program, stating that by choosing to deal only with brokers it has accredited, CBA treats intermediaries like its agents.
However, when the question of broker agency was directed to the Bendigo chairman, Mr Johanson provided a definitive response.
“I’m clear, they work for the customer,” Mr Johanson said. “Otherwise, why would the customer go [to] them.”
He added: “I must say, in thinking about all this, I am surprised there’s any question about that, and I'm surprised that the role of their responsibilities seems to be somewhat in question.”
Chairman issues warning
The Bendigo chairman was also asked by counsel assisting the commission Rowena Orr QC about his position on broker remuneration.
In response, Mr Johanson warned that with brokers originating a majority of home loans, it is “crucial” that regulators and decision-makers don’t implement changes that impede customer choice, referring to calls for a flat-fee or consumer-pays model.
“It’s crucial, I think, that we don’t interfere with the ability of customers to choose how they want to interact with this system, that we don’t end up with a fee structure that impedes different ways of providing that access to [customers],” he said.
Pointing to the Productivity Commission’s (PC) call to ban trailing commission, Ms Orr asked the Bendigo chairman if there’s a reason to keep trail commission.
To which Mr Johanson responded: “If a result of banning trail [is that] we force customers only to deal through banks and bank branches, I think that would be a very bad outcome.”
However, when asked what the value of paying trail commission to a broker is for consumers, Mr Johanson said that the remuneration package in its current form has been “an essential part of the distribution network for a lot of players in this market”.
Ms Orr then asked why the upfront and trail commission mode can’t be replaced with a fixed fee.
The Bendigo chair replied: “They could be if it were fully recompensing the broker. If it were done in a way that ensured that customers still get access to the advice and help they want.”
The seventh and final round of the royal commission’s public hearings concludes today (30 November).
The commission’s final report is set to be released in February 2019.