AFR runs defence-of-industry riposte from MFAA

In her opinion piece, titled ‘Banks are at war with each other not mortgage brokers’, Pannek hit back at the “misguided” headline of one of the Financial Review’s recent pieces: ‘CBA preps ultra-cheap loan amid war with brokers’ (relating to the move by the major bank to launch a new refinance product that undercuts both the broker and bank channels, as first reported by The Adviser).

The MFAA CEO argued that the portrayal of banks being “at war” with mortgage brokers was incorrect, stating that brokers were partners of the lenders – not competitors – as they are a key home loan distribution channel for them.

She said: “Positioning banks as competing with brokers is like saying Hilton hotels is competing with travel agents, instead of Hyatt and Sofitel.

“It completely misrepresents how the mortgage broking industry works. Brokers are not at war with banks. We act as distributors of their products.

“The recent reporting is right in linking brokers to competition. But rather than being in competition, we drive competition. Mortgage brokers have helped create a more competitive market where it is cheaper for all Australians to access credit.”

Instead, she corrected the positioning to outline that the “mortgage broking industry is not in competition with banks. Banks are in competition with each other”.

“[I]f some of the larger lenders are seeking to disrupt mortgage brokers and steer borrowers back into their branches, then they’re actually declaring war on home loan borrowers, for the benefit of their shareholders,” she said, noting that brokers help create a competitive market by offering access to numerous lenders, resulting in lower borrowing costs for consumers.

“The major lenders have been losing share to agile, nimble, low-cost, customer-focused lenders for a decade now. Why would anyone think increased competition driven by a broker network – leading to lower prices for consumers – is a bad thing?”

The MFAA CEO said that “attempts to shift blame during quarterly earnings announcements onto the broking industry” were purely “a thinly veiled push to drive higher margins at the expense of Australian borrowers”.

She said: “Mortgage brokers have helped create a more competitive market where it is cheaper for all Australians to access credit.

“Suggestions that mortgage brokers are ‘eating the banks’ lunch’ and that ‘banks need to wage war on mortgage brokers’, are way off the mark.

“The major lenders’ market share is not being ‘taken’ by the mortgage broking industry. It is being taken by more than 100 other lenders in the market, many of whom are accessed only via brokers, not branches. It’s a good thing too because if you live in a regional area, your choice of bank branches to borrow from is likely one, or none.”

In the opinion piece, the MFAA CEO emphasised that mortgage brokers have a “responsibility and a legal duty to find the most appropriate deal for borrowers under the Best Interest Duty” and “provide choice, value and guidance to millions of Australian borrowers, and access to more than 100 lenders, who all have to compete in a market – not a monopoly – for a borrower’s business”.

She concluded by flagging that the major banks “represent their shareholders in seeking strong margins” adding that their combined net profits of more than $30 billion last year for the big four “suggests they’re doing just fine”.

“Competition is here to stay, it’s being driven by mortgage brokers, and that is a good thing for Australian borrowers who are paying less interest on every loan because of the rise of the broking channel,” Pannek wrote.

“While 72 per cent of loans are originated by a broker, the other 28 per cent benefit from the competition driven by brokers as the industry drives lower prices on all mortgages.

“The big end of town’s market share might be shrinking, but that’s not our problem.

“Brokers are focused on the interests of their customers, and it is up to lenders to put their best foot forward to outstrip their actual competition – other banks.

“And that might just mean focusing on their customers: Australian borrowers.”

The full opinion piece running on the Financial Review from Anja Pannek can be found here.

While the MFAA CEO has hit back at the suggestion that banks are competing with brokers, some – such as Finsure CEO Simon Bednar – have suggested that the moves by the banks to undercut the broker channel do pose a threat to the channel.

The Finsure CEO said if “nothing is done” and this behaviour continued, it would undermine the competitive benefits of the broker channel.

“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,” he said.

Concerns rage over misrepresentations of broker incomes

Many in the broking industry have also voiced indignation at the claim by one Financial Review columnist that “millionaire brokers” are “wealthy, brash and eating the banks’ lunch”.

In the column, titled ‘Inside the unstoppable rise of Australia’s mortgage brokers’, the writer stated that the average income of some of the top mortgage brokers in the country was “close to $2 million” while another column by the same author (‘Banks gear up to take back mortgage market from brokers’) referenced unnamed “mortgage broking industry sources” to state 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,“ she said.

However, many in industry have emphasised that only a small proportion of brokers would be bringing in revenue of that number (with just 5 per cent of brokers aggregating under Australia’s largest aggregation group achieving that and many having large support teams to do so).

Moreover, brokers have flagged that this number does not take into account take-home pay, but rather business revenue. As such, it does not reflect the overheads brokers incur, such as staffing costs, rent, compliance costs, and other business operational outgoings.

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.

You can find out more about the issues raised by the Financial Review reporting in this podcast:

[Related: Industry hits back at ‘demonstrably false’ portrayal of broking industry]