The heads of an industry association and a major aggregator have renewed their opposition to a “flat-fee” model, ahead of the release of the financial services royal commission’s final report.
Speaking to the mainstream media, the director of mortgage aggregator Connective, Mark Haron, and CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, have issued warnings over the effect that a consumer or lender-paid flat-fee model would have on competition in the mortgage market.
Calls for a flat-fee model in the broking industry resurfaced in November, after Commonwealth Bank CEO Matt Comyn told the financial services royal commission that the bank had sought to introduce a “flat fee” commission-based model in January 2018, before choosing not to go ahead with the change in fear that the rest of the sector would not follow suit.
However, Mr Haron and Mr Felton have highlighted the dangers of such a model, ahead of the announcement that Commissioner Kenneth Hayne’s final report will be released by the federal government on Monday.
Mr Haron said that a flat-fee model would have “significant ramifications” for competition, which he said would not only affect interest rates but would also limit access to credit for “everyday Australians”.
“[CBA] will be the largest beneficiary of that,” he said. “They might be able to turn things around in their favour as a result of this royal commission.”
The MFAA’s Mike Felton agreed, adding: “Moving to a flat fee will entrench bank power in an industry where this has already been moderated.
“It will hand power back to the big four. It will destroy the broker channel and cut off access to small lenders, reducing access to credit at a time when it has become incredibly tight.”
“Brokers play a systemically important role in the redistribution of credit demand. A flat fee will see them turning away more complex files.
“It would provide an existential threat to the broking industry, and the main winners will not be consumers but Commonwealth Bank and Westpac – the banks with the biggest market share and largest branch network.”
The industry leaders also noted the work of the Combined Industry Forum (CIF), with Mr Haron calling for additional funding for the Australian Securities and Investments Commission (ASIC) to assist the CIF in its implementation of its reforms.
“We would like to see ASIC given more funding and resources to help the CIF implement and monitor these changes more effectively,” Mr Haron said.
“Now they have been implemented, we need more time to see them through.”
Mr Felton noted that the industry is already addressing perceived conflicts of interest, warning against a move to entirely ban commissions, given that complaints against mortgage brokers made up less than half of a per cent of overall complaints lodged to the Australian Financial Complaints Authority in November.
“A better approach would be to allow banks to pay commissions but to make sure conflicts are addressed – as they are being with the Combined Industry Forum. The industry is addressing conflicts of interest in a sustainable way that protects competition and customer choice,” Mr Felton said.
Mr Felton concluded: “If mortgage broking activity diminishes, this could have a significant detrimental impact on competition in the mortgage market. The potential beneficiaries of any lessening of competition would be the major banks with established branch networks.”
The comments come ahead of the release of the findings of The Consumer Access to Mortgages Report - a white paper commissioned by The Adviser - to reveal the true value of third-party distribution from the borrower’s perspective.
The cornerstone of the report, a recent survey initiated by The Adviser, asked broker and bank customers about why they used a broker or went directly to a lender, what their satisfaction levels were with the distribution channel they used, as well as what their experience and sentiment was around broker commissions.
Nearly 6,000 respondents completed the survey, which was widely shared and distributed by brokers and broker groups.
The survey was commissioned by The Adviser following ongoing scrutiny of broker remuneration and several pointed remarks regarding broker commissions during the seventh round of hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
It aims to provide interested parties with relevant empirical data regarding the impact that a change to broker commissions would have.
The findings of The Consumer Access to Mortgages Report will be released at a Sydney event on Thursday evening (31 January) and released in detail in The Adviser magazine.