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Banks speak out against the fee-for-service model

by Nick Bendel10 minute read

Two banks have disagreed with claims raised in the Financial System Inquiry that the fee-for-service model is superior to commissions.

Multinational firm EY was one of the parties that told the federal inquiry that brokers should give up “conflicted remuneration” commissions in favour of the fee-for-service model.

However, Bank of Sydney chief executive Julie Elliott disagreed with this view, and said that brokers bring a “very healthy and unbiased” level of competitiveness to the industry.

“We don’t agree, in fact we would say that mortgage brokers bring competitiveness to the industry that is very healthy and unbiased,” she told The Adviser.


“A fee-for-service model is likely to drive customers directly to the bank where they will gain no knowledge on what the market offers as a whole.

MyState Bank’s general manager of sales and distribution, Huw Bough, also said that a fee-for-service model was more likely to reduce rather than increase competition.

“The very strong view that we have is we don’t believe there is conflicted remuneration,” he said.

“The reason I would say that is brokers would generate over 50 per cent of new lending business, so I think they’ve earned the trust of consumers. The vast majority of brokers do the right thing.”

Both banks said they had been paying very close attention to the Financial System Inquiry, which released its interim report on July 15 and is due to release its final report next month.

Ms Elliott said the main issue that had interested Bank of Sydney was the debate about funding costs and regulation, which were raised in multiple submissions.

“Bank of Sydney believes that the second tier brings choice and competitiveness to the market but the reduced funding costs that the big four can achieve through the ‘implicit guarantee’ reduce that competitiveness,” she said.

“The other major issue is the fact that regulations allow the major banks to hold less capital than non top-four banks with mortgage portfolios that carry similar risk profiles.”

Mr Bough told The Adviser that technology was the main issue to catch MyState’s attention.

“I think it’s going to be the key to providing customers and brokers with a better experience. That’s critical for us as we start to drive more initiatives in that space,” he said.

“From what I’ve gathered, the inquiry has been seeking views on standardising technology and we’re going to be closely watching that.”

[Related: ME Bank calls for more broker disclosure at inquiry]

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