“It’s easy, more profits for the bank,” said Cairns Mortgage Brokers director Roger Ward when asked about CBA CEO Matt Comyn’s possible motive for pushing a flat-fee model for brokers.
In an interview with MPA, Ward said “the flat-fee model is the last move to mortally wound the broker network”. Comyn’s royal commission testimony revealed that CBA had wanted to move ahead with this model in early 2018 even though ASIC’s remuneration review into mortgage brokers never explicitly recommended that.
“Flat-fee is completely self-serving. At its core, it is about undermining the broker industry and making borrowers pay for a valuable service that is currently free,” Ward said.
CBA ended up backing down on introducing the flat-fee model, saying it would require regulatory change to remove the first-mover disadvantage. Now that it’s been made part of the public discourse once more, some brokers are worried that this could prompt the royal commission to seriously consider it as a recommendation going forward.
“Banks have absolute market dominance in the industry, and they are backed up by infrastructure and unlimited financial resources, and governed by mere self-interest,” Ward said.
In Ward’s opinion, the dawn of the mortgage broking industry is the greatest success story in Australia’s financial sector for the past 30 years, and the existing remuneration model is what allows it to survive.
“What the CBA and others seem to be planning is to undermine this consumer success story, and push more clients and profits back to the banks,” Ward said.
Filling the regional void
Banks have been withdrawing from regional Australia for several decades, with a growing number of regional towns having only a lonely ATM for a bank. Ward explained that the intellectual capital of the remaining bank branches has been dwindling as centralised lending practices leave many branches with staff with limited lending experience.
“The broker network has gone a long way to fill this void and to compensate by bringing other lenders to regional Australia who don’t have branch infrastructure,” Ward said.
“In short, mortgage brokers have been the cornerstone of the finance industry in regional Australia, and flat fees will reduce their income, and transfer costs to regional borrowers who already earn less in comparison to their city cousins.”
Ward feels that banks need to understand the experience of consumers with the mortgage broking industry. He said that with more than 55% of all mortgages being generated via the broker channel, it’s clear that consumers have decided that mortgage brokers are better qualified to provide choice and value to borrowers.
Ward said regulators should be congratulated for the brilliant outcome consumers get from brokers and how banks are paying for it.
“Banks need to understand that regional brokers have the intellectual capital, experience, and skillset that exceed the capabilities of most branches. Regional brokers should be paid in a manner that reflects the outstanding value consumers get from them,” he said.