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A series of wildly loose and sensationalist recent articles in The Australian Financial Review (AFR) would appear to have set brokers in the mainstream media’s crosshairs once again. The angle is broker remuneration and how banks are looking to “disrupt the disrupters” and take back market share from the third-party channel.
In one of the newspaper’s articles, a claim was made that the average mortgage broker in Sydney earns “$400,000 in upfront fees” and suggested that there is an “opaque nature” regarding the upfront and trail commissions paid to mortgage brokers.
The article said: “Based on standard broker commission rates, this suggests that the average Sydney broker is pocketing $670,500 a year when trail commissions are included.”
The dubious numbers are in stark contrast to the most recent Industry Intelligence Service (IIS) report released by the Mortgage and Finance Association of Australia that showed that 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.
The director of mortgages at Momentum Markets, Alex Whitlock, said that the mortgage broking industry is a “big target”.
“[We’ve] seen this time and time again from… publications like the AFR. It’s a cycle which is going to come around again. Mortgage broking is a very significant and mature industry in Australia,” Whitlock said.
“It’s going to get a kick every now and again from the media about brokers [earning] too much. It’s your classic, unfounded, tall poppy syndrome… We’ve been here before, and to be honest, I think it’s a storm in a teacup.”
But while Whitlock believes that irresponsible journalism like this would have no negative impact on borrowers, he flagged concerns over the potential political implications AFR’s reporting could cause.
“We’ve seen governments looking at mortgage broking and looking at conflicted remuneration. There’s a number of angles here,” he said.
“There’s CBA launching multi-channels to reach borrowers, that’s one element. But the other is about the ‘unstoppable rise’ of brokers and murky commissions. It worries me a little bit that you’re going to end up pushing this back into that legislative space.
“I think that knowing the work that the aggregators, lenders, and associations have done to educate the government and Opposition around the role that brokers play. I think it’s a reminder to the industry as a whole that it has to remain engaged and current.”
Whitlock acknowledged that while the top earners of the mortgage broking industry may earn “very valuable money”, the case is the same for “every senior executive in every industry sector can earn a lot of money”.
“You look at lawyers, accountants, banks, you take your pick. Bandying around the absolute top [percentage] and trying to highlight that as being what your average broker earns is completely farcical,” he said.
Phillip Tarrant, Momentum Markets’ managing editor for consumer finance and real estate, suggested that the newspaper’s reporting could be a result of a lack of understanding about the mortgage broking industry.
“It’s really, really simple for me. The majority of consumers want to use a mortgage broker to sort their financing because they don’t want to deal directly with the bank because they want the choice provided by the mortgage broker,” Tarrant said.
“I think the consumer will determine largely how they get their home loans.”
A ‘demonstrably false’ portrayal
In response, industry leaders have hit out against the newspaper’s claims as “demonstrably false”.
MFAA CEO Anja Pannek labelled the AFR’s opinion columns’ narratives as “grossly inaccurate” and a misrepresentation of how brokers are actually remunerated and regulated.
Executive chairman of LMG, Sam White, told Mortgage Business’ sister brand The Adviser that for a broker to be earning $400,000 as the AFR claimed, they would “need to be doing about $60 million a year ($61.5 million)”. He added that only 5 per cent of the aggregator’s 5,000 brokers fall into that category and many have large overheads.
Furthermore, managing director of the Finance Brokers Association of Australasia, Peter White, has written an open letter to the newspaper’s key editors for the opportunity to write his own opinion piece for the AFR in “response to what was at worst a biased attack on our industry, and at best inaccurate”.
“Our industry prides itself on our integrity, low complaint rate and our work with government and regulators to always protect consumers. We are legally obligated to act in the customer’s best interest and this article implies we don’t take that seriously,” White said.
“In the interests of balanced, ethical journalism, I respectfully request a right of reply that is both in print and online and provides equal exposure.”
Aggregator boss outlines ramifications of banks regaining market share
Additionally, one article from the AFR suggested that bank margins are being impacted by broker commissions.
It stated that the “hefty cost of commissions” paid to brokers are resulting in home buyers “paying more than they should” on their home loans due to banks factoring in the broker commissions into their mortgage pricing.
Indeed, the Commonwealth Bank of Australia (CBA) recently has taken such action by releasing a new digital-only mortgage offering that bypasses both the third-party and proprietary channels.
CEO of aggregation group Finsure Group, Simon Bednar, has warned a move by banks to attempt to regain mortgage market share could “undermine” the broking industry and “disadvantage their customers”.
“The margin squeeze banks are experiencing can partially be attributed to their insatiable appetite for cashback offers which was irresponsible and a fundamentally loose lending mechanism which only eroded economic value,” Bednar said.
“The impact of a tighter lending market will mean some banks will look to explore lowering the cost of capital channels, which could result in reduced loan applications through brokers.”
To find out more on this topic, tune in to the latest Mortgage Business Uncut episode below:
[RELATED: Does CBA’s direct play spell the end of retail lending?]
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