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The Commonwealth Bank will likely reduce 'spiralling' broker commissions in the near future in line with the Sedgwick Review and the Australian Securities and Investments Commission, UBS has claimed.
In their latest heavy-handed criticism of the broker channel, UBS analysts Jonathan Mott and Rachel Bentvelzen said that reduced broker reliance was an “illustration that CBA can leverage its large customer base, distribution strength and analytics”, and that CBA is now in a stronger position to negotiate “materially lower” commissions for mortgage brokers.
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“We expect an announcement on lower broker commissions imminently,” the analysts said.
According to the analysts, the recent ASIC and Sedgwick Reviews into broker remuneration would lead banks to “negotiate materially lower broker commissions”, and noted that CBA has said that an announcement on broker commissions would likely occur “pretty soon”.
On 9 August, Ian Narev, CBA's CEO, told The Adviser that the bank had been looking at the Sedgwick recommendations “very closely”, adding: “We are at an advanced stage of implementing those recommendations in all parts of the Commonwealth Bank in terms of our own people.
“In terms of the broker community, obviously there are different stakeholders that we need to engage with, and they are the topic of ongoing discussions as to how we make sure that we get the spirit and intent of the Sedgwick recommendations in an industry [that] is good for customers and retains that important customer proposition.
“I suspect we will all have more to say about that pretty soon.”
Reduced reliance
To the UBS analysts, CBA’s “increased reliance” on brokers in recent years has been a long-running concern, observing: “CBA had seen its use of mortgage brokers rise from 31 per cent in 2H12 to a peak of 50 per cent in 2H16. While this was in line with industry trends, we saw this as disappointing given CBA's large customer base, strong distribution network and customer analytics.”
The analysts added that during that same period, all sales growth came from the broker channel.
Looking to more recent figures over the last two financial halves, the analysts said that CBA’s 'strong turnaround' in sales and fall in broker use from 50 per cent to 43 per cent in 2H17 had led to upwards trending proprietary sales and a fall in the absolute dollar value of sales from mortgage brokers.
“We see this as a very important development for CBA,” the analysts commented, noting their belief that “mortgage broker commissions have been spiralling upwards for many years and mortgage commissions are the one part of the financial services value chain that have not seen margin pressure.”
Old trail commission will “take some time to roll of”, the analysts added, while predicting “a reduction in excessive broker commissions as an area of upside for CBA and the broader banking industry”.
The report is one in a line of reports slamming the broker industry, which several members of the industry have slammed for not only being “ridiculous” but also “incorrect”.
[Related: Major bank implements Sedgwick remuneration reforms]
