Mortgage Choice CEO Susan Mitchell has rejected suggestions that the industry should look to a lender-paid flat-fee model for brokers.
Despite the Labor party initially expressing “in-principle” support for all 76 of Commissioner Kenneth Hayne’s recommendations in his final report for the financial services royal commission, including a call for a borrower-pays model in the broking industry, it has been reported that the federal opposition is set to propose the introduction of a flat-fee paid by lenders to brokers, irrespective of the size of a loan.
Speaking to The Adviser following the release of Mortgage Choice’s half-year 2019 (HY19) financial results, CEO Susan Mitchell rejected the federal Labor opposition’s reported backing of a flat-fee broker remuneration model.
However, Ms Mitchell said that while she welcomed the Labor Party’s shift away from a borrower-pays arrangement (as would have been the case should the Hayne recommendations be adopted in full), she added that a flat-fee model would be “just as destructive”.
“It’s a very pleasing development to have the Labor Party reconsidering the consumer-pays [model],” she said.
“Although I would like to say that I believe the implementation of a flat-fee could be just as destructive to competition.”
Pointing to evidence provided by Commonwealth Bank CEO Matt Comyn during his appearance before the royal commission, Ms Mitchell said that a flat-fee would not sustain the broker model.
“Matt Comyn, in his testimony at the royal commission, actually suggested a fee that was 35 per cent of the current remuneration of a broker,” she said.
“That would make the channel completely commercially non-viable.
“I don’t think that that would be what we need to protect competition. It would just send consumers back to the big banks. There would be no more competitive pressure on prices.”
Ms Mitchell added: “A flat fee is not the answer.”
The Mortgage Choice CEO backed the current remuneration model, noting that it ensures that the interaction between brokers and their clients is relationship-based rather than “transaction only”.
The Adviser reached out to the Australian Labor Party for confirmation of its reported broker remuneration policy, but the federal opposition declined to comment.
Shadow treasurer Chris Bowen recently stated that the Labor Party would officially announce its official policy position “in the coming days”.
Profits plunge 44 per cent
Ms Mitchell’s comments follow the release of Mortgage Choice’s HY19 financial results, in which it has reported a 43.8 per cent decline in its IFRS net-profit after tax, from $11.4 million in HY18 to $6.4 million.
The brokerage’s home loan settlement volumes fell by 12.1 per cent, from $6 billion in HY18 to $5.3 billion in HY19, with Mortgage Choice’s loan book increasing by 1 per cent to $54.5 billion.
Ms Mitchell said that the brokerage had anticipated the result, attributing the weakened performance to residual costs associated with the brokerage’s franchise remuneration changes and softening credit and housing market conditions.
According to Ms Mitchell, loan volumes were also affected by tighter credit policies imposed off the back of scrutiny from the banking royal commission, which she said have created a “very different operating environment” for the brokerage’s network of franchisees.
Over the year to 31 December 2018, the brokerage’s franchise network reduced from 452 franchises to 403, with the number of brokers operating under the Mortgage Choice brand declining from 649 to 578 over the same period.
“Our franchise members decreased due to the one-off impact of the merging of owners of multiple franchises and the buyback of a group of [loan] books following the restructure of the remuneration model,” Ms Mitchell said.
She added: “The recruitment of new franchisees and loan writers was impacted by the uncertainty surrounding the royal commission.”