Banks respond to UBS criticism of brokers

Mix of support for brokers and silence following report claiming broker commissions should be cut

Banks respond to UBS criticism of brokers

Mix of support for brokers and silence following report claiming broker commissions should be cut

Banks have reacted to a highly critical report by UBS which claimed brokers are overpaid. 

According to the investment bank UBS, brokers add 16bp onto the interest rate of every mortgage customer in Australia and commissions accounted for a quarter of the costs in banks personal/consumer divisions. 
“Over coming months we expect the banks to begin negotiating materially lower commission rates from the mortgage brokers”, wrote analysts Jonathan Mott and Rachel Bentvelzen “while mortgage brokers are unlikely to be happy with this outcome, we believe there is little they can do.”

Bank views on UBS’ report

MPA contacted several banks to ask whether they agreed with UBS' findings. ING DIRECT, Suncorp and Westpac were able to respond, whilst AMP was not able to respond in time for this article. Adelaide Bank and ME declined to comment.

“Banks clearly see the value in the broker proposition”, ING DIRECT’s head of third party distribution Mark Woolnough told MPA. “You don’t get to 55% of the market if you’re not a trusted source.”
Woolnough didn’t see UBS’ report as entirely negative however: “Financial services are under the spotlight and I think its great brokers are in the conversation.” Rather than be concerned by the report, brokers should concentrate on their current clients, Woolnough suggested.

ING DIRECT are branchless and not the primary focus of UBS’ report, which mainly applied to the major banks. Westpac was voted no.1 in MPA’s recent Brokers on Banks survey and told MPA that “we don’t generally comment on reports published by other companies however we’re very supportive of the role that brokers play, as our CEO has made clear over the years.” 

Westpac CEO Brian Hartzer has attended mortgage broker events including Aussie Home Loans’ 2015 sales conference and Westpac has backed a mortgage broker, Uno, which they believe could disrupt the industry.

Suncorp told MPA that brokers played an important role in the business and stated "we do believe there is a role for commissions that recognise the significant role a mortgage broker plays".

UBS responds to broker criticism

The MFAA has claimed UBS’ calculations were incorrect and by combining upfront and trail commission figures UBS’ estimate of $4623 per broker was twice the actual figure.

UBS told MPA they stand by their research, pointing out that they used data provided by the ASIC and Sedgwick reviews into remuneration. Furthermore UBS’ notes in the report claim that their figure “understates the total commission payment per mortgage as trail commission is earned from mortgages earned in prior years with a smaller mortgage number base. The average commission earned per mortgage over the life of the loan is likely to be higher than this.”

Sedgwick’s changes to commissions

All four major banks and several non-major banks have already committed to changing commissions in line with the recommendations of the Sedgwick Review. Sedgwick recommended that commissions be decoupled from loan size but did not recommend lower commissions. Furthermore, some of the banks’ responses to Sedgwick noted the importance of brokers.

“We see mortgage brokers and other third parties as an important part of the future of our business” NAB Chief Customer Officer, consumer banking and wealth, Andrew Hagger explained “We will be working closely with the industry, Treasury and with the regulators, ASIC and the ACCC, to make sure we get the right result for our customers and the industry.”

ANZ’s response noted that “the review also acknowledged the important role of the mortgage broker industry in serving customers and promoting competition.” Westpac vowed to work closely with industry partners “including mortgage brokers”. CBA promised ‘consultation’ but did not claim brokers were important. 

Broker channel still growing

UBS’ report comes in the same week that brokers’ market share reached 53.6% of new residential home loans, the highest ever result for the March quarter, according to the MFAA.

This week also saw global bank HSBC re-enter the broker channel after a 10-year absence in partnership with Aussie Home Loans. On being asked by MPA why HSBC had re-entered the market now, head of mortgages and third party distribution Alice Del Vecchio commented that: “I think we know that we have really strong, compelling products: we’ve seen our above-system growth over the last few years and we really want to reach out and resonate with more consumers and Aussie’s in the perfect place to do that; we definitely think the timing’s right for us.”