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Speaking to the standing committee on economics during its review of the major banks yesterday (29 August), the Commonwealth Bank of Australia (CBA) and Westpac CEOs lamented about broker pays not being under the same microscope by regulators as their bankers.
CBA CEO Matt Comyn said that there is “no balanced scorecard” and “no fixed pay” and that brokers are “entirely remunerated based on the number of loans they sell”.
“We have 1,800 home lenders, and there are approximately 20,000 mortgage brokers,” Comyn said.
“It simply cannot be that there is an undue level of concern over what we are talking about, a few hundred lenders, compared to the 20,000 mortgage brokers that don’t have any of the controls in this regard.”
CBA came under fire from regulators – particularly the chairman of ASIC, Joe Longo, – following a decision spearheaded by Comyn to increase banker pay, effectively doing away with the 50 per cent cap on bonuses on top of base pay (implemented after the 2017 Sedgwick Review) and increasing it to 80 per cent in July.
Speaking today to the committee, NAB CEO Andrew Irvine said NAB had “reluctantly” followed CBA in breaking the royal commission-era bonus caps for bankers following defections to CBA.
Irvine said to the House economics committee that it was “not our [NAB’s] or my, preference to do so.”
Reportedly, Westpac is considering making a similar move to CBA and NAB.
Westpac CEO Peter King joined Comyn on the beat up on brokers, saying that “brokers do not have caps, so the banks have been operating since the royal commission at a different level to them”.
“You can’t have the smallest part of the market, which is the banks now, at a different point to the other because I think the systemic risk is higher in the mortgage broker piece,” King said.
ANZ boss Shayne Elliott is due to answer questions in the afternoon (30 August).
Speaking to Broker Daily, chief executive of Australian Finance Group (AFG), David Bailey, said that "it feels a little like Groundhog day".
"[There's] a little bit of selective referencing there. Brokers are small business operators [and use remuneration] to run the business, a banker's pay is not. There's a difference there.
"We have a legal requirement to act in the best interest of our customers, bankers do not. We've been through a number of waves of regulation in terms of licensing and responsible lending, and best interest duty, and our brokers have embraced that process and evolution," Bailey stated.
He went on to tell Broker Daily that suggesting that brokers are "unchecked or unmonitored is a bit of a stretch, particularly with the level of oversight aggregators provide [as well as] the lenders of the channel".
A disturbing trend emerges
These comments from Comyn and King follow a trend of bigger banks beginning to dump mortgage brokers, as seen most recently by Bank of Queensland’s (BOQ) exit from the third-party channel, a move the bank described as a “pause”.
And it’s no secret that CBA has set things into motion to slowly cut brokers out. New mortgage business through the broker channel has been consistently shrinking, with CBA’s most recent financial results revealing that broker flows have dropped to 35 per cent, down from 39 per cent the year prior.
In comparison, CBA’s new business through the proprietary channel has increased to roughly 66 per cent, up from 61 per cent in the previous corresponding period (30 June 2023).
These figures represent broker flows for CBA only and exclude its subsidiaries Bankwest and ASB. When looking at the group as a whole, broker flows decreased from 47 per cent to 46 per cent, with new business from the proprietary channel increasing to 54 per cent from 53 per cent.
Much like BOQ announced that ME Bank would be its primary broker brand, CBA made a similar move in creating Bankwest as its broker brand as it undergoes a digital transformation.
CBA’s deliberate shift away from the broker channel was made more evident following the release of its direct-to-consumer refinance product, which effectively cuts out both broker and proprietary channels, offering borrowers a lower interest rate when refinancing from another lending institution.
Despite the apparent move away from brokers, Comyn still told mainstream media following the bank’s financial results release that the broker channel is clearly “an important distribution channel and will remain so into perpetuity”.
However, Bailey commented that he doesn't believe that there will be a trend of more banks moving away from third-party distribution.
"We respect the bank's rights to originate business through the channel that they want to originate through, there's no requirement for them to use broker[s].
"What we will say is that broker market share continues to grow, and Australians are pretty smart, and if they think something isn't working, they don't use it anymore.
"The fact that the broker channel is continuing to grow indicates to me that it's a channel worth pursuing, and a channel that consumers are increasingly embracing for the competition, choice and convenience it provides," Bailey said.
The cycle repeats again
This isn’t the first time broker commissions have felt the heat from dissenters. An article published in the mainstream media earlier this year made inflammatory comments on broker remuneration, drawing criticism from the broking industry.
A claim was made that the average mortgage broker in Sydney earns “$400,000 in upfront fees” and said that there is an “opaque nature” regarding upfront and trail commissions paid to mortgage brokers.
These claims were in stark contrast to data released by the Mortgage & Finance Association of Australia (MFAA) that revealed that the average upfront broker remuneration was just $113,376 (in NSW and ACT) before costs and total gross earnings came in at $186,127 for these brokers.
[RELATED: BOQ fails to quash fears of third-party exit]
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