"They want to push us into extinction": Broker association

Industry associations say they were not surprised to learn that CBA had been seriously considering implementing a flat-fee model for brokers since at least 2016, but they claim the bank’s drive to axe commissions was not in the consumers’ best interest but its own.

“The proposal to adopt the Netherlands strategy is designed to maximise lender revenue,” said MFAA CEO Mike Felton in a statement.

“Under this model, broker customers pay the broker’s costs – instead of the bank – or branch customers pay a new fee that will substantially add to the bank’s revenue line and add thousands of dollars to the cost of getting a home loan from a lender directly.”

Felton said the flat-fee model is “anti-competitive” and “entirely self-serving”.

“Frankly, we were surprised that it is being suggested that one of the major lenders should be tasked with reforming Australia’s home lending market, given the revelations of the past 12 months,” he said.

Stephen Dinte, a steering committee member with the Independent Finance Brokers Forum, says the latest figures show that brokers have been instrumental in reducing the market share of the big four.

“Little wonder they want to push us into extinction. An obvious way to do that is promoting this flat fee model and/or fee for service,” he said.

AFG’s Mortgage Index for the first quarter of this financial year found that while the major lenders still hold 60% market share of AFG broker-originated loans, it is well below the high 70’s from 2013. Furthermore, the non-majors sit at historical highs with about 40% market share.

“Suggesting that by reducing commissions, the bank could redirect the savings towards lower interest rates for borrowers is a huge furphy,” Dinte said. “The big four have been stealthily attempting to increase their margins for years, to justify paying themselves higher bonuses.”

Even if consumers had to pay both brokers and bankers the same upfront fee, it wouldn’t level the playing field. Unlike brokers, in-house branch lenders wouldn’t have to worry about paying rent, staff and the electricity bill since all those overheads are already paid for by the bank, Felton noted.

“The average broker earns $86,400 per year before tax. If you reduce those earnings by two-thirds, as CBA has evidently considered, and force consumers to pay for brokers’ services, the broker channel would be annihilated,” he said.

The Combined Industry Forum has been advocating for reforms that directly address the key issues raised by the ASIC remuneration review and Sedgwick report. Dinte is hopeful that the proposals around remuneration will be enough to satisfy the royal commission.

“Regardless, finance brokers are, and always have been, the low fruit on the tree and are the ones who always end up losing financially. The banks used the GFC as an excuse to cut upfront commissions by around 15% and reduce trails by a whopping 40%,” Dinte said.

“The current events are just another attempt to drive down broker remuneration. If successful, they will drive out the vast number of existing brokers, and mark the death knell for new to industry participants.”

Dinte believes that what the banks are really threatened by is the fact that brokers build lifelong relationships with clients, and are there to help them with all their finance needs outside of regular business hours, which the banks can’t compete with.

“It is our ability to create relationships with clients that has seen us generate the vast volumes of business such that we are approaching 55% of all new lending,” he said.

“We are there through the client’s various stages of life. [The banks] may knock us down, but they will never knock us out.”