the adviser logo

Lenders have final say on broker commissions

by James Mitchell11 minute read
The Adviser

Seventeen lenders have publicly responded to an eleventh-hour submission from AFG to the Financial System Inquiry warning against commission reform.

The aggregator approached its lender panel seeking public endorsement of the broker channel.

Endorsements were received from ANZ and NAB as well as Adelaide Bank, AMP Bank, Bank of Queensland, Bluestone, Heritage Bank, ING Direct, La Trobe Financial, Liberty Financial, Macquarie Bank, ME Bank, MyState Bank, P&N Bank, Pepper, Suncorp Bank and Wide Bay Australia.

Acknowledgement was received but no endorsement provided by Bankwest and Westpac.


AFG said it had yet to receive any response from Citibank, Commonwealth Bank or St George.

Michael Lawrence, managing director of AMP Bank, noted that AMP is a branchless bank with a core focus on Australian residential mortgages.

"Our model is to originate mortgages through intermediaries such as brokers and advisers," Mr Lawrence said.

"As such, the broker industry is considered a key component of the overall mortgage market and now accounts for 50 per cent of all loans written, with brokers providing an independent and viable offering," he said.

NAB's executive general manager of growth partnerships, Anthony Waldon, expressed the major bank's support of the current commission model for mortgage brokers.

"The current commission-based system requires all remuneration and potential conflicts of interest to be disclosed to customers, and we believe that in general brokers do a good job in meeting these requirements," he said.

ME Bank chief executive Jamie McPhee said the broking industry is well-regulated and provides high-quality services to consumers.

"We believe a fee-for-service remuneration model could undermine the long-term viability of the broking industry, in turn affecting the ability of smaller banks like ME Bank to compete with the majors, further entrenching the dominance of the majors and reducing competition," Mr McPhee said.

MyState also endorsed the key themes contained in the AFG submission to the Financial System Inquiry.

"Non-major bank lenders, like MyState, are highly dependent on brokers in order to allow consumers access to their products," managing director Melos Sulicich said.

"We believe that the vast majority of brokers provide advice to customers based on their needs and suitability with price and speed of service the main drivers," Mr Sulicich said.

"Our view is an upfront payment to the broker for providing us with a loan is fair for the work, research and advice they provide and we also recognise the ongoing relationship the broker has as our 'local contact/adviser', so pay an ongoing trail commission," he said.

Bluestone national sales manager Royden D'Vaz said the lender supports leaving the current remuneration model in its present form.

Heritage Bank said the broker channel is a vital part of its business and encourages greater competition within the market.

The lender shares AFG's concerns that a fee-based remuneration model may reduce competition by encouraging customers to limit their enquiries to the big banks, in order to avoid possible fees.

Meanwhile, ANZ noted that the references in the Financial System Inquiry interim report to brokers appear quite limited.

"On page 2-21, the report seeks further information on vertical integration in banking," ANZ said in its response to the AFG submission.

"On page 2-68, there are positive references to developing the broker market and SME lending to increase competition," the lender said.

"Industry stakeholders may be raising the concerns you note, but it is not clear that these are reflected in the Financial System Inquiry interim report."

ANZ added that if issues of concern to brokers arise in the final report, due this month, the major bank will work with AFG to support sensible policy options.

Suncorp Bank chief executive John Nesbitt commended AFG on calling out an increase in vertical integration in mortgage broking in its last-minute submission.

"In recent years the broker network is increasingly being owned by financial institutions, particularly large banks," Mr Nesbitt said.

"We commend you on calling this out in your Financial System Inquiry submission, and agree that the broker industry has an incredibly important role in maintaining real choice and independence in the mortgage market," he said.

"From our perspective, the increasing entrenchment of major banks via vertical integration poses long-term risks to the reputation of the broking community."

"As seen in relation to financial planning, ownership by large banks can be perceived as compromising independence."

All lender responses can now be viewed here.

[Related: Banks speak out against fee-for-service model]



You need to be a member to post comments. Become a member for free today!
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more