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The Commonwealth Bank of Australia is amending the way it segments its accredited brokers, moving to a two-tier system that takes into account quality metrics rather than just volume thresholds.
While details have not yet been publicly announced by the bank, during the course of the hearings, it was revealed that CBA broker is in the process of moving away from its old tier segmentations (diamond, gold, silver and bronze) and focusing on quality over quantity metrics.
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For example, the highest tier, diamond, currently requires mortgage brokers to write at least $15 million a year and/or at least 75 loans in settlement volume, along with any three (of five) quality metrics.
The main benefit of being in the higher tiers mean priority service, with diamond brokers getting fast turnarounds and advice on loan structuring from the bank.
While giving evidence at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Daniel Huggins, CBA’s executive general manager for home buying outlined that the system was put in place because he “couldn’t offer a one-day turn around to 13 and a half thousand brokers”.
“I have to choose who I am going to offer the best service to and, at this stage, the way of segmenting it was by volume in recognition of those brokers who were the… largest writers of business.”
However, the CBA executive conceded that its old broker tiers could “create a conflict of interest”.
He said: “[T]here’s a conflict created in this structure in that… because it’s volume based, it means that… someone that’s right on the threshold of being a diamond broker (and being a diamond broker is valuable because you get the extra service) can create a conflict. So that’s why we’ve made the change.”
As such, the bank will be moving to a “simplified”, two-tier model.
Mr Huggins stated: “So, the segmentation has been simplified down to two tiers: essential and elite. And you would have, in that new tiering system, quality metrics and then a series of complimentary metrics…
“[Brokers] would be able to get into that elite tier, which is where we offer our best service offering, without necessarily hitting a volume target.”
The CBA executive added that the changes were also brought in to create a more even playing field for brokers outside of the major cities, because the bank “tended to see that… someone who had a lot lower volume, just because they may have been in a smaller town, wouldn’t end up in these [top level] tiers.
“So, we’ve changed it to both acknowledge the conflict and also to try and get some of those people who are writing great loans, that are bringing fantastic service to customers but… would never be able to get into these tiers. We would like them to be able to get access to the best service.”
He added that the essential level brokers would be still offered a “very good baseline level of service”.
According to Mr Huggins, the banks has begun the transition of “progressively rolling out” the new system and has been telling brokers of the changes at its professional days.
More details of the segmentation changes are expected in due course.
Accreditation changes
The changes to segmentation come amid an overhaul of CBA’s interaction with brokers.
In December 2017, CBA announced that it would be bringing in new benchmarks for mortgage brokers “designed to lift standards and ensure the bank is working with high-quality brokers who are meeting customers’ home lending needs”.
As part of the reforms, new mortgage brokers are required to meet new minimum education standards to be able to write Commonwealth Bank loans and demonstrate a commitment to professional development and on-the-job experience.
For CBA accreditation, all new brokers will soon be required to meet the following standards:
- Hold at least a Diploma of Finance and Mortgage Broking Management
- Have at least two years’ experience writing regulated residential loans
- Be a current member of either the Mortgage & Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA)
- Be a direct credit representative or employee of an approved aggregator/head group or Australian Credit License (ACL) holder
However, it is believed that the bank will accredit a new broker with less than two years’ experience if they have a mentor (which several industry members had called for). The bank has not yet confirmed this.
[Related: CBA may not reaccredit brokers with ACLs]
