Broker remuneration: Is there really a problem to fix?

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    All the talk around changing the broker remuneration structure could easily make you wonder if there is really something broken in the mortgage industry. Although one big bank honcho certainly thinks there is, Connective CEO Glenn Lees begs to disagree.

    “The growth of the mortgage and finance broking industry in recent years has given rise to greater competition amongst lenders,” said Lees in a communication he sent to Connective’s member brokers.

    “There has also been a correlated and strong downward pressure on interest margins across the entire home loan lending market. As a result, banks are making materially less interest margin than they would without the competition that brokers facilitate. This is undeniably a positive outcome for all consumers, regardless of whether they use a broker or go direct to their lender of choice.”

    Lees also said that none of the several studies that have been used over the last two years to scrutinise broker remuneration found the kind of systematic misconduct that would require substantial reform.

    Lees contended that a shift to a flat-fee model would substantially harm mortgage brokers and, in turn, home loan consumers. The model would weaken the brokering channel, and would only benefit lenders with huge branch networks.

    Just for convenience
    Lees doesn’t see the sense of disrupting the entire home loan industry just to remove what the Royal Commission considers “conflicts” in the existing remuneration structure. The views of CBA CEO Matt Comyn go totally against that of Macquarie CEO Nicholas Moore, who acknowledges the important role brokers play in “bringing to light” various available loan options to consumers.

    Regarding trail commission, Lees said that the “industry needs to stand together and ensure there is no uncertainty as to what trail commission represents,” because “consumers need ongoing support to ensure their home loan products remain competitive and ‘not unsuitable’ in the long term.”

    “It was all a bit too convenient that when asked what ongoing services a mortgage broker supplies, Mr Comyn responded ‘I think they would be limited,’ continuing upon further questioning to state “closer to none” as this aligned with the ‘fee for no service’ theme that has arisen throughout the Royal Commission,” said Lees.

    According to Lees, Moore gave a better justification of trail commission when he said that they would like to see the current remuneration structure “coming back to the alignment point, to reflect the value being delivered which is over the life of the loan.”

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    Original Article