Commonwealth Bank accused of having an agenda ‘to destroy’ brokers

Major mortgage broking group Finsure says Commonwealth Bank has a concerted strategy ‘to destroy’ the broking industry.

Finsure managing director John Kolenda.

One of the nation’s largest mortgage broking groups says Commonwealth Bank has a concerted strategy “to destroy” the broking industry.

Finsure, which has a network of more than 1500 loan writers in its aggregator group, is among mortgage brokers that oppose the Hayne royal commission’s call for commission payments to be scrapped and replaced by a flat fee.

The industry has increased the pressure on the federal government and Labor to open consultations on commissioner Kenneth Hayne’s recommendations. However, Finsure managing director John Kolenda claims CBA and its chief executive, Matt Comyn, had an agenda at the royal commission, and earlier, to cut the bank’s reliance on brokers.

“He (Matt Comyn) was really out to destroy the mortgage broker market,” Mr Kolenda said. “It (royal commission evidence) shows a well-thought-out strategic attempt to eradicate brokers and strengthen retail branches.

“Matt Comyn is proposing a broker should get $2300 per loan, or approximately one-third of current commissions. This would decimate the industry as this is revenue and doesn’t even include the costs of compliance, phone, ­office, car, internet and travel, etc.”

CBA and Bendigo and Adelaide Bank are among lenders that have been vocal in their support of banning broker commissions, while others such as ANZ and Macquarie have cautioned that a flat fee model might have unintended consequences.

At the bank’s interim results this month, Mr Comyn reaffirmed his views on brokers and Mr Hayne’s recommendations.

“I can see the challenges for brokers but ultimately I do think they deliver better customer outcomes,” he said.

Mortgage brokers are now paid an upfront commission as a percentage of the home loan amount and an ongoing trail commission. Brokers account for 59 per cent of mortgages written, and the industry argues that ending commissions would entrench the power of big banks and deliver them hundreds of millions in cost savings.

Josh Frydenberg accused Labor yesterday of not understanding the issues and told The Australian the government was opting for a cautious ­approach to Mr Hayne’s recommendations on broker pay.

“If you get rid of mortgage brokers, their business will simply move to the big banks,” he said. “The big banks have a larger branch presence, which would allow them to win business currently going to the smaller and community-owned banks that are more reliant on mortgage brokers.

“Bill Shorten is gearing up to give the big banks a massive free kick. He is ignoring the advice of the Productivity Commission and many others about the risks of moving to a borrower-pays model.”

Emails between Mr Comyn and then CBA boss Ian Narev in 2017, tendered at the royal commission, show the former proposing to move to a flat fee for brokers and reduce the bank’s reliance on them, particularly where it had branches. They also show CBA ­assisting the Australian Securities & ­Investments Commission with its inquiries in order to further its views.

“When we met with ASIC in November we got the strong sense that they would find there was no evidence of broker commissions driving increased debt, slower ­repayments and customers paying more interest,” Mr Comyn said in the email.

“We did a five-year longitudinal study for them which showed that broker incentives were demonstrably leading to poor customer outcomes … I think they may have rewritten their report because it shifted from December to March.”

CBA also proposed transitional arrangements, providing an extra discretionary payment of $2500 and other sweeteners to key brokers.

“Approximately 3500 brokers … will be eligible for transition payments. These brokers will be selected based on current volume and/or complementarity with our proprietary network,” another Comyn email said.

Treasury is said to have conducted informal discussions with the Combined Industry Forum over the proposed broker changes. A development in the process is that the federal government’s royal commission taskforce has morphed into the Financial Services Reform Implementation Taskforce.

The government is taking a phased approach to Mr Hayne’s recommendations, including dropping trail commissions from mid-2020, and then reviewing the change in three years.

Labor and its opposition Treasury spokesman Chris Bowen are also said to have had discussions with key industry bodies and consumer groups about the Hayne recommendations. Labor is yet to articulate its final view but earlier said its intention was to implement the reforms in full.

“It’s not the time to be rushing into this,” said David Bailey, chief executive of listed broker AFG, noting brokers often did preliminary work with borrowers who had loans knocked back.

“We want to engage in a conversation about the remuneration model,” he said. “One out of every three loans lodged by mortgage brokers in Australia do not settle. There are many factors behind this.”

Mr Bailey joins Mortgage Choice boss Susan Mitchell in calling for the consultation on the Hayne recommendations.

The commission called for sweeping changes, including that mortgage brokers are bound by a best-interest duty and that pay models are changed over several years so customers pay a flat fee. To create a “level playing field”, banks also should be required to charge a direct fee, capitalised into the loan, Mr Hayne said.

A flat-fee broking fee model was introduced in The Netherlands in 2013. The fee was charged to the borrower and tax- deductible.

Online mortgage broker Lendi’s approach differs from its peers after drawing on The Netherlands’ experience.

Lendi boss David Hyman supports the Dutch model on several fronts, including a lowering of interest rates charged to consumers after the change.

He also noted that research firm Statista found broker market share dipped from 58 per cent in 2013 to 52 per cent two years later, but then recovered to levels higher than before the change at 64 per cent.