ISCOVER
Proprietary lending isn’t “better for customers” until banks clean up introducer pipelines, says David Hyman, CEO of the Lendi Group.
Banks keep saying they want to push more mortgages through proprietary channels because it is “better for customers” and “cheaper to write”.
If that is true, the first place that needs attention is not the cost of broker loans. It is the introducer pipelines that feed bank distribution.
What is an introducer?
An introducer is not a broker. They refer a customer to a lender and get paid if the loan settles. They do not provide credit advice, they do not arrange finance, and they do not have the statutory duties that brokers carry.
Mortgage brokers must comply with the National Consumer Credit Protection Act and act in the customer’s best interests under ASIC’s guidance. Introducers rely on a licensing exemption. Brokers have to prove they have acted in the customer’s best interests every time. Introducers do not. That is an uneven playing field and one that puts customers at risk.
We have seen this before
The NAB Introducer Program was examined at the royal commission. NAB paid $15 million in penalties for using unlicensed introducers before shutting down the program. ASIC also took action against ANZ, resulting in a $10 million fine. These cases showed what happens when large volumes of loans flow through referral programs with weak controls: customers suffer.
Despite this, introducer programs still exist. Two of the major banks continue to run them. One even promotes commissions of 0.33 per cent of the loan amount. That is distribution spend in plain sight, yet it comes without the obligations brokers meet every day.
Industry estimates suggest there are tens of thousands of introducers operating under exemptions today. That number alone should concern regulators.
The risk and reward do not line up
When pay depends only on settlement, without the discipline of the best interests duty, the incentive is to get the loan through the system rather than to check suitability or compare alternatives. That is why the broker regime exists and why it works.
One broker recently commented that spot and refer carries “virtually no duty of care, no real choice, and is often an opportunistic cash grab”. That view reflects the frustration of a sector that has invested heavily in compliance, systems and service, only to see banks continue to lean on lightly governed referrer pipes.
Why brokers have won customer trust
Consumers have already voted with their feet. Broker market share of new residential lending is knocking on 80 per cent – a figure that has grown steadily over the past decade. Customers choose brokers because they want choice, transparency and service.
Trust is central to this. Brokers reprice loans, review client positions each year, help customers reduce debt faster and support them through life stages. All of this comes with significant infrastructure costs. It is also why surveys consistently show brokers are now the preferred and trusted channel for home loan advice.
This level of investment and professionalism is one reason many believe broker remuneration should reflect the higher standards the industry meets today, not be cut back.
5 changes that would help
If proprietary distribution is genuinely better for customers, introducer programs should be subject to much tougher rules. Here are five changes that would make a difference:
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Apply best-interests-duty-style obligations to referrers, or limit their role to a clear handoff into a regulated broker channel.
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Make lenders disclose at first contact who is paying the referrer, how much in dollar terms, and confirm in writing that the referrer is not providing credit advice.
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Require banks to audit and report on introducer-sourced loans with independent checks and published data.
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Apply clawbacks on introducer commissions if loans discharge early, just as brokers face today.
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Call introducer payments what they are: third-party distribution costs. Stop comparing them to broker pay without recognising the different standards involved.
The bottom line
If banks want to argue proprietary lending is better for customers, the standards should be higher, not lower. Cleaning up introducer risk is the place to start. Only then can there be a fair conversation about distribution economics across channels.
Until that happens, it is difficult to accept claims that brokers are the expensive or risky option when the alternative leans on thousands of unlicensed introducers with little oversight.
Consumers deserve the same protections in every channel. Brokers already meet that standard. It is time proprietary referrer pipelines did the same.
David Hyman is the co-founder and CEO of Lendi Group, the parent company of major brokerage brand Aussie and fintech company Lendi.
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