• 22/02/2024

Furphies and Shockers from the Royal Commission

The banking Royal Commission has unearthed some horror stories and some furphies.

Last month, CBA revealed to the Commission that there are now 1300 brokers earning more than $1 million a year, and the top 200 brokersare pocketing more than $2.5 million.

Undoubtedly, mortgage broking can be a highly rewarding career, but CBA’s figures gild the lily somewhat.  Certainly there are brokers whose businesses turnover these figures.  But for a broker’s business to be this big, it would need to employ an army of staff to manage the logistics of so many loans.

Just as a GP practice relies on receptionists, practice managers and nurses to look after patients, so to does a mortgage broker business have to pay compliance experts, settlement officers and marketing specialists – all of whom need paying from the top brokers’ pocket.

Historically, some brokers have questioned CBA’s commitment to the broker channel. So, when Commonwealth mooted changing broker remuneration from a commission-based model to a flat fee, many called it out as an attempt to reclaim market dominance at the expense of those who chose to arrange their loan via a broker.

CBA’s position was in contrast to that of its closet rival, Westpac, which said in its evidence to the Royal Commission, the current remuneration model  is not “not inherently problematic” and opposed a ban a trailing commission.

Macquarie Bank went even further, arguing that brokers provide “genuine competition” and that a fee-for-service model “doesn’t sound as attractive as the current structure”.

Its CEO, Nicholas Moore, reiterated that competition in the finance industry has helped drive down interest rates by 2.5 per cent and that this competition could not have occurred without the broker distribution channel, on whom Macquarie depends.

Mr Moore added that he believed that changing to a fee for service “does not sound as attractive as the current structure”.

Indeed, while the CEO of ANZ, Shayne Elliott, outlined that a flat fee paid by lenders was “worth looking at” and “not an unreasonable proposition”, he argued that it could make it “uneconomic” for low-income borrowers. He added that “no system’s perfect”.

The mortgage broking industry has always been subject to change.  But, if CBA gets its way, consumers may not like the result.

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