Which Banks Are Changing Broker Commissions Fastest?

From Mortgage Professional Australia.

The latest update on bank reform has revealed the slow and varying progress made by banks in changing broker commissions.

Ian McPhee’s report, commissioned by, but independent of the Australian Bankers Association, asked banks how far they had implemented the Sedgwick Review’s recommendations. Stephen Sedgwick called for an end to volume-based incentives and for banks to ensure remuneration was not directly linked to loan size.

Macquarie Bank, My State Bank, and Bank Australia were amongst the furthest ahead banks, with ‘substantial alignment’ of their broker remuneration to Sedgwick’s recommendation. Only Qudos Bank was fully aligned with the recommendations.

Conversely, Commonwealth Bank’s broker remuneration and governance arrangements were ‘not aligned – planning and/or some implementation progressed’. Work on reforming remuneration had not started at Bank of Queensland, and work reforming governance had not begun at Bank of Sydney.

Of the other majors, ANZ, NAB, and Westpac reported partial implementation of Sedgwick’s reforms.

An imperfect scorecard

McPhee himself notes that “it is not appropriate to draw early conclusions on the status of individual banks’ implementation programs.”

For a start, banks self-reported their own progress with minimal oversight from McPhee. Furthermore, banks’ reporting cycles vary; a bank that reports at the end of the financial year may appear further advanced than a bank that reports at the end of the calendar year, for instance.

According to McPhee “the Sedgwick Review recommendations relating to banks’ arrangements with third parties are least progressed, with a number of banks reporting that they are still in the planning phases. This reflects the time taken to establish the Combined Industry Forum and agree industry-wide responses.”

The Combined Industry Forum set out its changes to remuneration in December.

More lenders to change their commission models

From Australian Broker.

Other lenders are expected to amend their remuneration structures following ANZ’s changes to its upfront commission model, with major banks to lead the way.

ANZ will pay brokers an upfront commission of 62.5 basis points effective 1 February 2018, up from the current 57.5 basis points.

Under the new structure, ANZ will no longer give brokers volume-based incentives, following the Combined Industry Forum’s proposal to stop the payment of volume-based bonus commissions and campaign-based commissions in response to the ASIC and Sedgwick reviews.

ANZ’s trail commission structure remains the same.

While ANZ is ahead of the curve, other lenders are likely also re-examining their own broker remuneration models in the wake of the CIF reforms.

“It’s indicative of what’s going to happen – the pressure as a result of the ASIC inquiry to remove soft benefits and incentives, particularly volume-based incentives,” said Martin North, principal at Digital Finance Analytics.

He believes the change in ANZ’s upfront commission model is a good move because it streamlines the structure and makes it clearer.

“The problem with volume incentives and soft benefits is that they raise complexity and confusion in the minds of potential consumers, on whether they are getting the best advice they could get and whether the advice is in some way being influenced by financial incentives. Anything that can be done to remove that ambiguity is a good thing,” he said.

While some brokers believe it is still too early to tell how further changes to broker commission will affect their business, they welcome such changes if they will help improve customer experience.

“Ultimately, if the reforms help deliver better customer outcomes, then that is a good thing,” said John Flavell, CEO of Mortgage Choice.

David Meadows, client services manager at Astute Financial, said further regulatory reviews and changes to remuneration structures will affect profitability, but that such changes are not entirely bad. “Increased regulatory reviews are happening across the financial services industry,” he said. “We are not the only ones going through them.”

For now, ANZ’s tweaking of its commission system is not believed to be a disincentive for brokers. It in fact represents a slight increase in broker commission, said North.

“My understanding is that not very many brokers would have gotten the higher commission previously because it was volume-incentivised.”

CBA to Change Mortgage Broker Commission Structure

From The Adviser.

The Commonwealth Bank of Australia expects to have the CIF-recommended changes to broker commissions instated “ahead of 30 June” next year, according to its general manager for distribution strategy and execution.

Speaking to The Adviser following CBA’s announcement that it would no longer accept accreditations from new mortgage brokers with less than two years of experience (or from those that only hold a Cert IV in Finance & Mortgage Broking), CBA’s general manager for third-party banking, Sam Boer, and Matthew Dawson, general manager for distribution strategy and execution, revealed that they expect to change broker commissions next winter.

Mr Boer and Mr Dawson both welcomed the Combined Industry Forum’s reform package, which was released last week (and to which Commonwealth Bank was a contributor) and included recommendations that lenders pay brokers commission on a utilisation basis (i.e., based on facility limit drawn down by the customer and, in cases where the loan has an offset account, on the amount drawn down net of offset account balances).

General manager Boer said: “The whole industry got behind that one and we thought it addresses the concern raised around the potential conflict of interest and we’re very much supportive of that and working through our solution with our business partners on how we might go about implementing that in the new year.”

Mr Dawson added: “We are still working through the how of the commission changes, but we expect that we will still have it implemented ahead of 30 June.”

The CIF reform package states that it expects the commission changes to be implemented by lenders by “end 2018”.

Changes to CBA accreditation for new brokers

Last week, the major bank revealed that it would be making major changes to the way it accredits new brokers.

From “the first quarter of 2018”, new mortgage brokers will be required to meet new minimum education standards to be able to write Commonwealth Bank loans and demonstrate a commitment to professional development and on-the-job experience.

For CBA accreditation, all new brokers will soon be required to meet the following standards:

– Hold at least a Diploma of Finance and Mortgage Broking Management

– Have at least two years’ experience writing regulated residential loans

– Be a current member of either the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA)

– Be a Direct Credit Representative or employee of an approved Aggregator/Head Group or Australian Credit License (ACL) holder

Mr Dawson told The Adviser: “We will absolutely be building a training framework and ongoing professional development framework as part of the rollout of the new strategy coming in to ensure that the brokers we’re partnering with feel assured and comfortable when they are sitting down in front of a customer to have really deep conversations around appropriate products for them.

“We will be providing that and equally working with the head group programs to ensure that the head groups that have their own professional development programs… that we support each other…. We provide content for their platforms and, where appropriate, we will rely on their platforms as a means of us getting comfort over the professional development of brokers.”

Mr Dawson continued: “I think, for us, this has been about working with the [Combined] Industry Forum and we have played a key lead role in that.

“It has been really important for us, and we are really supportive of the industry forum and the consultation process that we ran in terms of the engagement with brokers.”

He revealed that the bank surveyed 12,000 brokers in July and got nearly 2,000 respondents.

“We’ve had focus groups with many brokers right throughout the country over the last couple of month. We’ve met with every head group. This has been, for us, all about residential and making sure we support a robust industry and support the longevity of the industry.”

CIT Proposes Broker Remuneration Changes, Keeps Commissions

The representatives of Australia’s mortgage broking industry have prepared a reform package that they say will improve consumer outcomes and confidence in mortgage broking. But the package still keeps the essence of commissions, while removing volume incentives and capping soft benefits. Disclosure of ownership and commissions will be improved.  [This all signifies the current arrangements are not adequate – and change is needed – an important signal in my mind!]

The details from Australian Broker.

The reform package is the result of unprecedented engagement between industry bodies, lenders, mortgage brokers and their representatives, aggregators, introducers, and consumer groups, who have worked together since May 2017 as the Combined Industry Forum, and follows consultation with regulators and Federal Government.

The paper is in response to the proposals outlined in ASIC’s Review of Mortgage Broker Remuneration, and takes into account the third party recommendations of the ABA’s Retail Banking Remuneration Review.

The industry has agreed on six principles that will be implemented to ensure better consumer outcomes and improved standards of conduct and culture, while preserving competition in mortgage broking:

  • The standard commission model will avoid financial incentives that encourage consumers to borrow more than they need or will use, for example by basing commissions on facility draw down net of offset;
  • Volume-based and campaign-based commissions paid by lenders and aggregators are recognised as raising potential conflicts of interest and poor customer outcomes and are expected to cease;
  • Non-monetary benefits will only be given based on a balanced scorecard and good customer outcomes, and benefits given by lenders will be capped;
  • Ownership models and commercial relationships will be made clear on all marketing materials, including websites, where ownership is greater than 20 per cent, so consumers have the right information to make informed choices;
  • ASIC and consumers will be given clearer information on where loans are written, commissions paid and interest rates, to increase transparency and accountability in the industry;
  • The industry will introduce an improved Governance Framework that monitors for, and identifies risks, and requires the industry to take action and continuously improve where issues are identified.

In drafting these reforms, the industry has also for the first time set a standard definition for ‘good customer outcomes’, which looks at the size and structure of the loan, affordability, responsible lending requirements and individual customer needs.

Combined Industry Forum chairman Anthony Waldron said the release of the report this week was a significant milestone and laid clear foundations for industry-led transformation.

“We are genuine in our commitment to not only meet the proposals put forward in ASIC’s review of mortgage broker remuneration, but to raise the bar on the expectations of stakeholders from all corners of the industry,” Waldron said.

“We hope to lead by example by taking a proactive position in those areas where our industry has the opportunity to deliver even better customer outcomes.”

Combined Industry Forum deputy chairman Mark Haron said: “For a diverse range of key stakeholders to come together to deliver a meaningful package of industry-led reform is unprecedented in the financial services sector. The mortgage broking industry introduced true competition to Australia’s lending landscape and this, in itself, has delivered vastly better outcomes for consumers. With that said, there will always exist areas for continued improvement in any industry and the measures set out today mark an important step in setting a new and superior standard in mortgage broking.”

Australian Banker’s Association deputy CEO Diane Tate said: “We have put customers at the centre of this important package of reforms. The industry will be holding itself to a new standard, set higher than the law requires, when assessing good customer outcomes. The banking industry is committed to implementing this reform package, and to monitoring the impact of the reforms to ensure they are delivering benefits for customers.”

MFAA CEO Mike Felton said: “It has been tremendous to be a part of an industry that has united in its commitment to ensuring that broker remuneration is targeted at promoting strong consumer outcomes and the sustainability of our industry. It is a credit to all industry participants and representatives that they have embraced the task of self-regulation and delivered this suite of genuine reforms in such a timely and comprehensive manner.”

FBAA executive director Peter White said: “The undertakings and endeavours of the Combined Industry Forum has been an extensive exercise in co-operation and mutual respect between those who are not always necessarily aligned on matters. It has been a rewarding time to see how we as an industry and competitors can work together for the good of an industry we hold dearly, and to ensure good consumer outcomes are continued to be maintained by our actions. It is an honour to be a part of this group and the
journey will continue into the future as we continue to work with government and our regulators on these outcomes.”

Australian Finance Industry Association (AFIA) CEO Helen Gordon said: “Our members are focused on financing Australia’s future including for home ownership and investment. Mortgage brokers play a pivotal role in facilitating consumer choice and access to that finance. AFIA has welcomed the opportunity to work through the Combined Industry Forum with key industry players to propose action to address consumer risk areas raised by ASIC, while enabling home buyers to continue to have access to a competitive mortgage

Customer Owned Banking Association (COBA) CEO Michael Lawrence said: “The Combined Industry Forum has focused on improving outcomes for consumers and this package of measures is aimed at delivering on that objective. The broker channel is a big segment of the home loan market, with brokers representing more than 50% of home loans written.”

The Combined Industry Forum will report on its ongoing progress to ASIC, Treasury and the Government on a regular basis.

ABA dumps Sedgwick’s commissions guidelines

From Mortgage Professional Australia.

Banks will be free to take their own approaches to broker remuneration after the Australian Bankers Association abandoned a key part of the Sedgwick Review.

Originally the ABA set out for banks to collectively develop “guiding principles” for the way banks remuneration brokers and their own staff. However, the preparation, consultation and finalisation of guiding principles will no longer take place, according to an update on the ABA’s work by independent but ABA-commissioned reviewer Ian McPhee.

Each bank will instead develop its own approach to commission, a move receiving scathing criticism from McPhee: “In taking this decision to vary its implementation plan, the industry has forgone the opportunity to establish guiding principles and demonstrate strong leadership in this area which has traditionally had a high profile, by building on the momentum for change stimulated by the Sedgwick Review and ASIC’s review of mortgage broker remuneration.”

Banks have also dropped their original plan to work directly with legislators to change broker remuneration, McPhee reported. Instead, they will work with brokers within the Combined Industry Forum and “proceed without the need for regulatory or legislative intervention to achieve the outcome of improved payments and governance practices.”

Clearing the path for the Combined Industry Forum

McPhee’s finding that the ABA has effectively sidelined its own report represents a huge victory for brokers.

Sedgwick recommended ‘guiding principles’ which included decoupling remuneration from loan size and bringing broker governance in line with that of retail bank staff.

Furthermore, Sedgwick recommended banks implement these changes by 2020, putting banks on a completely different timeline to that adopted by brokers and the Government following ASIC’s separate remuneration review.

Now banks can develop their own principles for remuneration, they will be free to take pragmatic approaches to commissions which better meet brokers’ expectations. It also opens up the intriguing possibility that banks who are more reliant on brokers – such as the non-majors – could adopt more generous remuneration arrangements than those with larger direct channels.

The signs of division 

MPA reported earlier this week that the Sedgwick’s proposals could soon be buried by the banks.

The first signs of division emerged during the Treasury’s consultation process following ASIC’s Review, where different banks took very different views to those expressed by Sedgwick.

Westpac explicitly criticised the use of flat fees, noting: “a flat fee commission structure could prompt an increase in split banking as brokers seek to maximise income by submitting smaller deals.”

The final straw may have been the announcement that ANZ CEO Shayne Elliott would be the ABA’s next chairman. Elliott told the House of Representatives last week the commission changes were ‘complicated’ and needed more work: deputy CEO Graham Hodges added that “the devil’s in the detail because clearly, it’s going to affect thousands of brokers.”

Branch tellers not rewarded for sales – CBA

Commonwealth Bank has announced further changes to the way   frontline staff are remunerated, increasing the focus on customer service and rewarding branch staff for delivering better customer outcomes, not financial outcomes.

The nation’s largest bank and branch network will move approximately 2000 customer service representatives, also known as tellers, to a new remuneration plan focused on the individual’s contribution to providing superior customer service. Any links to financial measures have been abolished.

Commonwealth Bank Executive General Manager, Angus Sullivan, said: “This change will reward our tellers for continuing to provide superior service to the millions of customers we serve around the country.

“We have been listening to our customers and this is another step to ensure banking is fairer, simpler and more transparent. Customers can be confident that our tellers are not being paid to sell them products.

“The new remuneration plan will support and encourage our teams to have better quality conversations with customers, understand their needs and provide the best possible service.

“This will further strengthen our customer focus and align the way we reward our people with industry standards and community expectations.”

These new measures will be backdated to 1 July 2017, the start of the current CBA performance period, removing all financial measures from individual performance.

In addition, close to 200 Bankwest branch tellers will also move onto a customer-focused remuneration structure from 1 October 2017, the start of the Bankwest performance period.

Commonwealth Bank has already made a number of changes moving away from sales-based incentives and recognition programs, and towards values-based rewards.

Mr Sullivan said this is another example of our commitment to implement all Sedgwick Review recommendations ahead of the 2020 deadline.

“We understand that there is always more to do, and we have been actively participating in the independent review by Mr Sedgwick and the Australian Bankers Association,” Mr Sullivan added.

CBA’s view on commissions published by Treasury

From Mortgage Professional Australia

Commonwealth Bank’s views on commissions have been made clearer after the Treasury made public CBA’s submission to ASIC’s Review of Mortgage Remuneration.

When the Treasury first revealed submissions from banks, aggregators, and associations last week, CBA did not appear to have made a submission. A spokeswoman told MPA that the bank had “contributed via the ABA’s [Australian Bankers Association] submission” and CBA’s submission points several times to the ABA’s Sedgwick Review, without explicitly repeating Sedgwick’s proposal to de-link broker commissions from loan size.

However, CBA’s submission also diverges from the ABA’s views. CBA state that “we note and support the comments in the ABA’s submission regarding a self-regulatory model, however it is important that the frameworks responding to both the Retail Banking Remuneration Review [Sedgwick Review] and Report 516 [ASIC’s review] be aligned.” CBA then requests further consideration and guidance from ASIC.

Divisions appear between the major banks

CBA’s guarded views regarding commissions are not necessarily shared by other banks.

NAB’s submission called for changes to the calculation of upfront commissions, whilst Westpac’s rejected many alternate remuneration models, including ASIC’s own commission-by-LVR suggestion.

The ABA’s submission strongly supported self-regulation through the Combined Industry Forum, which includes the MFAA, FBAA and other representatives through broking. CBA, alongside other banks, faces a balancing act between the Forum’s recommendations and those of Sedgwick, which they publically vowed to implement by 2020 if not earlier.

ANZ’s views remain unknown as their submission to the Treasury remains private, if indeed one has been made.

Growing frustration with public reporting proposal

One area where CBA was open in their views was ASIC’s 5th proposal, for more public reporting of the industry.

“The development of an enhanced public reporting regime should have regard to the nature of any commercially sensitive data,” warn CBA, “there may be some instances where data should remain private and more suitable to inform the regulator’s supervisory activities,”

Brokers have also criticised ASIC’s 5th proposal, with the FBAA arguing that “the very concept of publicly reporting this data is misguided and we do not support any part of it.”

What Aggregators Told the Treasury About Commissions

From Mortgage Professional Australia.

AFG, Connective, Aussie, Mortgage Choice, Loan Market, Smartline and Specialist Finance Group made submissions in response to ASIC

Aggregators and franchise groups have near-unanimously criticised changes to commissions in their submissions to the Treasury.

Three wholesale aggregators and four franchise groups, representing thousands of brokers, were responding to ASIC’s Review of Mortgage Broker Remuneration, published in March this year.

Connective’s submission summed up the general mood, stating: “the review seems to abandon the existing responsible lending framework, instead seeking to solve a poorly defined problem with an impossible to implement solution.”

Most aggregators rejected all alternative commission arrangements, giving reasons similar to Mortgage Choice’s argument: “to suggest that it would be effective to change the shape or quantum of broker commissions based on LVR, interest-only or lower loan amounts would not be correct. Broker economics need to line up with lender economics and consumer outcomes.”

NAB’s submission proposed upfront commission be linked to the drawn down amount, but only Smartline tentatively endorsed this approach, saying it “may make sense”.

Backing the MFAA, attacking the ABA

In their submissions, aggregators overwhelmingly backed the MFAA and industry self-regulation, which was endorsed yesterday by Minister Kelly O’Dywer.

Aussie and Loan Market pointed to the MFAA’s submission as reflecting their views, with the former noting “[Aussie] believes that potential changes that introduce unreasonable levels of complexity or inconsistency should be avoided. It will, therefore, be necessary to achieve industry consensus on any proposed actions before changes are implemented.”

Aggregators also attacked the Australian Bankers Association and its Sedgwick Review of commissions, with Smartline stating that “it concerns us that the ASIC report references the ABA report, which in our view was manifestly inadequate, lacking in substantive evidence to support recommendations, while being commissioned by a representative group with significant vested interests”

What about bank-owned aggregators?

Choice Aggregation, FAST and Plan Australia were represented within NAB’s submission to the Treasury which proposes major changes to commissions.

Bank ownership did not, however, appear to have an impact elsewhere. Aussie, which as of last week is 100% owned by CBA, was highly critical of changes to commissions.

Connective, which is part-owned by Macquarie, agreed with ASIC that controlling ownership interests should be disclosed to customers, whilst Mortgage Choice, which is ASX-listed, asked for further guidance on what constitutes a controlling interest.

Neither VOW nor Yellow Brick Road were listed among submissions to the Treasury, although it is possible they made anonymous submissions or submissions through the MFAA or FBAA.

Industry ‘needs to make adjustments’ to commissions: NAB

From The Adviser.

As the latest organisation to reveal the details of its submission to Treasury regarding ASIC’s proposals for broker remuneration, Anthony Waldron, executive general manager of NAB broker partnerships, said that the bank largely agreed with all six proposals, which could “improve the trust and confidence that consumers can have in brokers”.

Mr Waldron said: “Like ASIC, we want to strengthen the positive contribution that brokers provide. We see opportunity to lead by example and grow trust if we take it on ourselves to improve and to embrace change within our industry for consumers. This is because any strong industry needs to earn, retain and continue to build the trust of its consumers. Trust is the most valuable commodity.”

He continued: “We don’t believe that the current standard commission model has resulted in poor consumer outcomes, but we believe it is essential to manage not only actual conflicts but also the potential for perceived conflicts of interest.

“ASIC suggests lenders should not ‘structure their incentives in a way that encourages larger loans that initially have larger offset balances’. We believe the industry needs to make adjustments to the standard commission model by paying up front commissions based on the drawn down amount, not the total facility amount, and by paying up front commission net of offset balances.”

Reiterating that NAB has “never paid any sort of volume bonuses on mortgages” as it recognises that this could create a conflict of interest, Mr Waldron suggested that “the time for such payments has passed”.

Touching on soft dollar benefits, Mr Waldron said that these could be “managed transparently through gifts and conflicts of interest registers”, but suggested that the ongoing education and professional development of brokers was “essential” and that the industry should “continue to focus on this, ensuring it’s conducted in line with community expectations”.

Public reporting regime should be ‘cautious’ in comparing data

Acknowledging that NAB is in a “unique position in the broker market, operating as both a lender, provider of white label lending and having ownership of three of Australia’s leading aggregator groups — PLAN Australia, Choice and FAST”, Mr Waldron said that the bank knew that it needs to “build a more robust industry model, not just to reduce the perception of conflict of interest but for end-to-end governance”.

He elaborated: “We know we need to increase transparency to protect the interests of customers and brokers, and we’re mindful that today’s actions will be judged by tomorrow’s standards. We have already improved disclosure of our ownership of aggregators: PLAN Australia, Choice and FAST.”

However, he suggested that ASIC’s proposal for a new public reporting regime should be “cautious” in comparing some data, such as price, as there “are many factors that impact price and simple comparisons are difficult to make”.

A reporting regime would therefore “require the support of the industry to be successfully and consistently implemented”.

“Our industry needs to come together to get this right,” he said.

Lastly, Mr Waldron said that improving the oversight of brokers by lenders and aggregators will also require industry consultation and would require a “clear delineation between the requirements of brokers, aggregators and lenders to avoid duplication and overlap”.

NAB reportedly believes that the two important areas of any oversight model should cover responsible lending, and the reporting of ACL’s and brokers in the market regardless of licensing agreements.

“If we are focused on good customer outcomes, proving responsible lending guidelines have been followed will be even more important, both at the time of establishing a loan and when ongoing service is provided,” the executive said. “And any governance regime should also consider how lenders and aggregators will report cases of alleged misconduct of mortgage brokers to ASIC.”

In conclusion, Mr Waldron said: “Our industry has an opportunity to lead by example. We need to manage conflicts of interest, pursue self-regulation, proactively manage perceptions and demonstrate how we will continue to improve for the end benefit of customers. This will require consultation and discussion for us as an industry, with brokers, aggregators, Treasury, regulators and other industry participants to work out how this can best be put into practice.”

Noting that it has been “great to see the industry already come together” to form the mortgage industry forum, Mr Waldron went on to thank brokers for their support.

“Our priority is to continue to back [brokers] in delivering the best customer experience by moving forward with the times.

“We have a real opportunity to chart our own course for the interests of consumers and the progress of our industry.”

Flat fee model will hammer consumers: FBAA

From Australian Broker.

Calls by consumer advocacy groups to scrap upfront and trail commissions and bring in a flat fee for brokers will lead to negative consumer outcomes, the head of a leading industry association has warned.

Dramatically changing the current commission structure would alter the dynamics of the industry and significantly reduce the amount of operators working with it, Peter White, executive director of the Finance Brokers Association of Australia (FBAA), told Australian Broker.

In a time before brokers, interest rate margins were much higher than current times, he said, with these margins dropping to a more reasonable level once brokers finally entered the market. Introducing a fee for service would reverse this trend, he added.

“If we disassemble the marketplace, the impact is that margins would go up even further with the banks. The service levels would also drop away because it was the brokers who introduced home delivered services to the home loan sector.”

Product enhancement and development would also be affected, he said, with brokers helping supply consumers with new and innovative products from branchless banks and non-bank lenders which depend on the third party channel.

“The commission model as it stands is fair across the full marketplace. The regulators aren’t suggesting drastic changes; it’s only the consumer advocacy style people who say that this should happen. Nobody else in the marketplace is saying this because it is only benefit after benefit that brokers have brought in.”

While White admitted there were a very small minority of dodgy brokers in the industry, he said that upending the commission model was not the way to sort this out.

“Every now and again you come across brokers who you know shouldn’t be in the game and you do what you can to get them out. But this is the same for any industry. If someone’s going to be a crook, they’re always going to be a crook. What you need to do is to find them, get them out, and put them behind bars.

“Even with a fee-for-service structure, they’re still going to be crooks. The issue is that if you turn around and destroy the commission structure or make huge, significant changes, you’re going to have reduced competition in the marketplace, worse service standards, higher interest rate margins, and very bad consumer outcomes.”

The commission structure is intrinsically linked to competition because at the end of the day the broker offers a service that the lender normally provides, White said.

“As far as finding a client, it saves the lender advertising dollars. When you look at the loan process, the things that a lender normally does are being done by a broker. The lender has already marginalised that cost into their branch network. It’s actually a cheaper marginalisation cost to cover a broker’s fee or to pay commission.”

The current commission structure also ensures that smaller deals are financially viable for the lenders, White said, adding that the flat fee model would mean banks lose money on these deals unless they bring interest rates up.

“The bank has to make sure they make money on those transactions. There’s an intrinsic problem of pushing up interest rates because of smaller loan sizes. And if you then suggest putting in a tiered flat fee structure, what’s the point in that? The commission structure deals with that variable anyway. On the smaller transactions, the broker gets paid less but the client gets looked after.”

White said that the FBAA has approached consumer groups like CHOICE with these issues in the past.

“Unfortunately, they’ve got a very blinkered approach to the world and don’t really want to sit down and have discussions with you. You’ve also got to be very cautious because anything you say to them can be taken in different directions.”

“I was a part of the audit committee for some research they did a couple of years ago. The data was taken from about 18 people looking for loans but they saw that as being symptomatic of a much bigger issue in the whole sector. There were some issues that came out of that which were relevant to industry but it didn’t prove it was a symptomatic, systemic, industry-wide issue.”

While consumer advocates said these results were just the tip of the iceberg, they were more likely the entire iceberg, White said.

“It’s not like there’s an issue with 10% or even 1% of the marketplace. The number of claims or issues that occur on a monthly basis are very, very small compared to the total size of the marketplace.”