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Senior members of the broking industry have hit out at mainstream reporting that misrepresents broker salaries and commission disclosures.
Over the weekend (25–26 May), The Australian Financial Review (AFR) ran three stories relating to the broker channel. In one, which focuses on the ‘unstoppable rise’ of mortgage brokers, the newspaper revisits how brokers are remunerated and rehashes arguments about broker commission raised during the banking royal commission and in the following election.
Another looks at how banks are now looking to reclaim market share from brokers with digital-only mortgage offerings (such as that being undertaken by CBA at the moment) as a means to bolster net interest margins.
In the articles, the AFR suggests that broker commissions have been eating into bank margins, with the newspaper highlighting how brokers are paid: “The hefty cost of commissions paid to mortgage brokers means home buyers – those who go through the banks’ branch networks and those who use a broker – are paying more than they should on their mortgages because banks factor the commissions into the pricing of their home loans.”
However, a report into broker remuneration from the financial services regulator in 2017 found that interest rates are not different between distribution channels. At the time, the regulator found that there was not “a consistent trend that brokers obtained either cheaper loans or more expensive loans”, noting that “some lenders provided brokers with slightly cheaper loans while others provided cheaper non-broker loan”.
One of the articles suggests there is an “opaque nature of the upfront and trail commissions paid to brokers” and highlights that “the average Sydney mortgage broker earns around $400,000 in upfront fees each year. Based on standard broker commission rates, this suggests that the average Sydney broker is pocketing $670,500 a year when trail commissions are included”.
However, members of the broking industry have hit out at the claims, emphasising that brokers are already beholden to disclose commissions and rarely would be earning the figures outlined in the feature.
Indeed, the latest Industry Intelligence Survey (IIS) report from the Mortgage & Finance Association of Australia (MFAA) – covering the six months between October 2022 and March 2023 – showed that the average upfront remuneration generated by brokers in NSW and ACT was $113,376 (prior to costs), with total gross earnings coming in at $186,127 for this cohort.
Senior leaders of the broking industry have hit out at the articles, labelling them as “demonstrably false”.
‘Grossly inacccurate’, says MFAA
Anja Pannek, the CEO of the MFAA, said the narrative in the opinion columns was “grossly inaccurate and misrepresents the work of brokers, how they are remunerated and regulated”.
“Firstly, the claim that brokers are, on the whole, earning incomes in excess of $500,000 is incorrect. Broker remuneration is also heavily regulated – bank branch staff pay isn’t,” she said.
“Brokers are transparent with their clients about what they will get in commission, again unlike bank branch staff.
“Brokers are compensated for the value they create for the lender. Let’s not forget lenders retain the vast majority of the profit from any home loan. As in any industry there is a spectrum of income and profitability across brokers and there are brokers in the top 1 per cent bringing in substantial sums in commissions, but this is not the norm for a broker.”
The MFAA CEO said that brokers have large overheads to think about: “Our IIS data provides insights at an aggregate level on commissions, at the moment this is around $180,000. However, it is misleading to state this is what a broker takes home in pay. The IIS data very clear states that this is commission before the operating costs of running their business.
“No matter the size of a broking business, brokers must pay for the running costs of the business from their commissions, whether that is paying for office space, staff, services or regulatory fees.
“In addition, it takes years to build a broking business, referral network and trail book.”
Pannek also suggested that banks weren’t ‘at war’ with the broker channel – as one of the article headlines had suggested – emphasising that brokers are a key distribution channel for the lenders.
“As banks have closed branches, letting their staff go in the process, brokers have filled the gap – all while banks have made record profits year after year,” she said.
The CEO of the MFAA said she believed that one of the “biggest inaccuracies” to come out from the AFR stories “was the impression that there is an incentive for brokers to suggest clients sell their home simply so they can get a commission on the next property”.
“This is just not true,” she said. “Nor is it true to claim that increasing house prices are increasing broker pay. The average commission a broker receives has not increased at anywhere near the rate of house prices, and at a time when the cost of doing business is going up.
“Not only that, brokers don’t encourage their clients to borrow more, and it’s lenders – not brokers – who decide how much someone can borrow.”
‘Blatant bias against brokers’, says FBAA
Peter White AM, managing director of the Finance Brokers Association of Australasia (FBAA), said that the AFR coverage was “inaccurate” and “displays not only a misunderstanding of legislation and the way our sector works, but a blatant bias against brokers”.
“I am disappointed that the AFR failed to fact-check this dribble and have advised the AFR of this,” White said, particularly calling out the claims around broker average remuneration and “many other false statements”, which he said were “rubbish”.
“It also doesn’t deserve our attention. My message to brokers is to focus as you always do on serving Australia’s borrowers well and ensuring you act in their best interests.
“The fact that mortgage brokers are trusted so highly by our customers is all that matters.
“The FBAA is continually dealing with all levels of government, regulators and other stakeholders and these parties all know the truth and value our industry, as do millions of Australian consumers.”
Stories are ‘perpetuating myths’: Sam White
Sam White, the executive chairman of Australasia’s largest mortgage broker aggregator LMG, told The Adviser that he was “disappointed” that the newspaper appears to be “perpetuating myths” that had been disproved previously.
White emphasised that it was a legal requirement for brokers to disclose their commissions to clients and were held to a best interests duty when recommending mortgages to clients.
“It’s the law,” he said. “Brokers have been disclosing commissions for a long time now, it’s very clear what’s going on.”
White also hit back at the claim that the average Sydney broker earns $400,000 in commissions. “First of all, that’s a business revenue; it’s not broker earnings. That’s business revenue before business costs … and there’s a lot of costs brokers have,” he said, such as staffing costs, rent, marketing, and general business overheads.
“The second thing is, to earn $400,000 in residential mortgages, you need to be doing about $60 million a year (around $61.5 million).”
White revealed that of the 5,000 brokers aggregating under the group, only 5.1 per cent of them “do over that number in a year and pretty much everyone in that category has business support and employs staff to help them do that sort of volume”.
“So to say that, somehow the average team broker earns $400,000 upfront is demonstrably false and disappointing that was it was unattributed,” White continued.
The LMG executive chairman said the articles showed that the industry needed to be better at educating mainstream journalists, and the market more broadly, about “exactly how brokers operate”.
“I think [it’s] time to redouble our efforts on educating the market,” he said.
“The fact that some of these myths are being perpetuated now is a sign that we need to increase our engagement with all the stakeholders in the community.
“But, I think the message for brokers is that we just need to make sure we keep looking after customers,” he said, highlighting that client satisfaction is already “incredibly high” for brokers, with minimal complaints being lodged against brokers.
[Related: Broker contributions shouldn’t be forgotten: MFAA/FBAA]
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