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Aggregators and franchises have dismissed concerns raised at the Financial System Inquiry that broker recommendations are being skewed by bank ownership of mortgage groups.
ME Bank told the Financial System Inquiry that “vertical integration is distorting the way in which mortgage brokers direct borrowers to lenders” – a claim echoed by other smaller lenders.
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However, Aussie executive chairman John Symond recently told the inquiry that it would be irrational for Aussie brokers to favour Commonwealth Bank, which owns 80 per cent of the group.
“[Brokers] have no rational incentive to favour the products offered by their parent company over another lender and will instead respond to any shift in market pricing and incentives,” he said.
Similar comments were made by Mortgage Choice, in which Commonwealth Bank has a 17 per cent stake.
Chief executive Michael Russell said brokers take pride in acting in the best interests of their clients, although he acknowledged that a “perceived conflict” can sometimes exist.
“The perception that bank ownership distorts a broker’s recommendations often arises when the bank on the register of the head group elects to pay a higher level of commission, or lowers their aggregation fees, as an inducement for business,” he said.
Ballast chief executive Frank Paratore told The Adviser he has no problem with the principle of banks owning aggregators, because the professionalism of brokers is beyond question.
“Where I would be disappointed would be if there were preferential rates provided or if there were stronger incentives provided with regards to selling a specific product, because the whole mandate of being a broker is to provide a level of choice,” he said.
Finsure managing director John Kolenda also said he was comfortable with the idea of banks owning aggregators, although he added that ASIC might be monitoring the situation.
He said it was up to ASIC to decide whether or not to place limits on the number of mortgage groups in which a lender could invest or the extent of any shareholding.
“That’s at a strategic level, but at an operational level it’s hard to see that a lender can necessarily influence what a broker does, because a broker doesn’t sell one product,” he told The Adviser.
“As a broker, I may be owned by one bank, but I also have other banks on my panel, so I’m not a bank employee only limited to selling a bank product.”
[Related: A broker-owned union is the answer to big bank dominance]
