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The industry ‘needs to be prepared to take action on behalf of brokers’ if banks continue to undercut the channel, the Finsure CEO has said.
Simon Bednar, the CEO of aggregator Finsure Group, has issued a warning about the ramifications of the growing trend for banks to try and regain market share from brokers.
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Following on from comments from the new CEO of National Australia Bank (NAB) that the broker channel is not producing returns on capital and a move by the Commonwealth Bank of Australia (CBA) to bypass brokers and branch staff with a digital-only refinance offering, the Finsure CEO said if “nothing is done” and this behaviour continued, it would undermine the competitive benefits of the broker channel.
“The margin squeeze banks are experiencing can partially be attributed to their insatiable appetite for cashback offers which was irresponsible and a fundamentally loose lending mechanism which only eroded economic value,” Bednar said.
“The impact of a tighter lending market will mean some banks will look to explore lowering the cost of capital channels, which could result in reduced loan applications through brokers.
“The hard truth of the matter is if nothing is done, brokers will be adversely affected with customers bearing the burden of limited choice as banks push back into proprietary channels.
“While the broking community understands that economic conditions have been tougher for banks, particularly with home lending, blatantly undermining mortgage brokers is not in the best interests of consumers.”
The Finsure CEO flagged that brokers are responsible for writing more than two-thirds of new residential home loans, adding that the channel had provided widespread benefits to consumers in the channel’s 30-year history.
“Brokers offer consumers choice like never before and undercutting brokers is a direct attack on the industry to claw back direct-to-customer market share,” Bednar said.
“Reduced applications circulating within the broker market will mean rationalisation of the broking sector.
“We are also facing a situation where broker commission could be affected as banks look to claw back margin,” he said, flagging similar situations in New Zealand and Canada where market conditions had threatened commissions.
“This is a major concern for our industry and if the banks follow through, we may have to consider fees-for-service to help brokers maintain revenue.”
The Finsure CEO suggested that margin and profit pressures may also result in lenders failing to pass on any future rate cuts in full.
He said: “There would be a strong reaction to this due to ongoing cost-of-living pressures for consumers on bank’s gouging profits, and no doubt some political pressure from government.
“But while it would be unpalatable to consumers, it is one way that banks can engineer a return to positive cost of capital.
“Whatever stance is taken by major banks, our industry needs to be prepared for these changes and be ready to take action on behalf of brokers.”
The Finsure CEO’s concerns echo those made by the heads of the broker associations earlier this month.
The Finance Brokers Association of Australasia (FBAA) managing director Peter White AM told The Adviser at the time that he believed it was “highly inappropriate for [banks] to turn their backs on our industry that’s built and supported them for the last 30–35 years,” White said.
Speaking on the NIM constraints from NAB, White said he’d be “very surprised that the mortgage broking sector was putting pressure on the NIM... side of things”.
“Their rates through their branches are the same as their rates through the broker channel, and the broker channel is a more cost-effective way to distribute products,” White said.
Similarly, the CEO of the Mortgage & Finance Association of Australia (MFAA), Anja Pannek, said the focus should be “on the great work that brokers are doing and not this, ‘smoke and mirrors’ around margin compression".
The association heads flagged last week that while they were frustrated and disappointed at CBA’s move to bypass brokers for its new refinance offering, the value of the broker channel would continue to see it dominate.
[Related: CBA reassures brokers about digital home loan play]
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