Broker support a mixed bag among the majors
Channel conflict in mortgage lending has matured from the chaotic skirmishes of the past into the occasional flare-up of tensions between major banks and brokers.
The concept – where lenders compete with brokers by offering borrowers better deals, faster approvals, or exclusive incentives for going direct – first took root in the early 2000s, as brokers began establishing themselves as a powerful force in mortgage finance.
With brokers now commanding nearly 80% of the home loan market, channel conflict is no longer the contentious flashpoint it once was, though some friction still simmers beneath the surface.
Kaine Adamson (pictured) has seen the issue from both perspectives. A relative newcomer to mortgage broking, Adamson recently made the increasingly well-trodden journey from bank to broker.
That path is particularly popular at customer-owned P&N Bank. Both Adamson – formerly P&N Bank’s Perth-based general manager for broker – and Gemma Piscioneri, the bank’s former head of retail distribution, crossed over to broking earlier this year.
“When I was on the lender side, channel conflict was certainly a hot topic from brokers,” Adamson said.
“If you went back four or five years ago it was rife… some banks were notorious for it,” he added. However, he stressed that P&N Bank had made significant efforts over the years to eliminate such conflicts.
Major banks have also taken more proactive steps, with state managers working to address channel conflict more directly. This is especially relevant amid ongoing scrutiny of the strict clawback policies still enforced by the majors.
Brokers are often slapped with commission clawbacks when borrowers refinance. This is particularly frustrating when branch managers poach customers by refinancing them internally – triggering clawbacks for the original broker.
But according to Adamson, “in my experience, (this has) always been investigated,” and clawbacks are frequently cancelled when it's found that a branch manager acted improperly.
As for those brokers hoping clawbacks will disappear entirely, Adamson offers a word of caution: be careful what you wish for.
Read more: The case for and against clawbacks
“If we went for a no-clawback model, chances are there's going to be some form of change to upfront or trail commissions that lenders are just going to pass onto us – they're not going to pass that on to the consumer,” he said.
Clawbacks are simply a part of doing business, in Adamson’s view. “There's unfortunately just genuine circumstances where it happens and you might get blindsided, whether it's a marital dispute, or they've had to sell a property.”
But if state managers and business development managers (BDMs) have become more proactive in addressing channel conflict, the majors still have work to do on the broker experience.
Adamson has mixed opinions on dealing with the majors in his short time as a broker, with some lenders taking up to a month to process an accreditation – a point of frustration for him.
On the other hand, Adamson commended the likes of Westpac, NAB, Macquarie and CommBank subsidiary Bankwest for their proactive BDM support.
Brokers, added Adamson, also have a responsibility to ensure channel conflict doesn’t arise. There is still accountability on the broker’s behalf “to ensure that we're keeping regular contact with our client and we're selling the value proposition”, he said.
The borrower’s choice
Channel conflict might not not be the prominent issue it once was, but there has been an observable push by some major banks to write more volume through their direct channels.
It’s no secret that Commonwealth Bank, as the benchmark against which all Australian financial institutions are measured, has a lucrative proprietary channel it wants to hold onto.
Just a third of the high-street giant’s home loans originate through the broker channel, compared to 60% at its Big Four competitors.
Combined with CommBank chief executive Matt Comyn’s propensity to criticise brokers’ pay packets, there is undoubtedly lingering ill will among some brokers.
But CommBank’s recently appointed general manager of third party banking Baber Zaka has been on a media flurry to dispel any anxieties over channel conflict at the banking giant.
“What I really want to do is show all the brokers out there our commitment to mortgage broking and how much we really value the channel,” Zaka told MPA in April.
Zaka pledged to deepen the relationships CommBank has with brokers and “challenge some misconceptions” about CommBank’s relationship with the third party channel.
Nonetheless, CommBank has the largest retail network in Australia. With shareholders to look after, it will undoubtedly do what is best for the bottom line.
But the argument that brokers are more expensive than proprietary lending is debatable.
“It’s not the commission we’re paid that’s more expensive, it’s the fact that brokers are driving competition, which means that it’s keeping the rest of the banks honest, which means that they’re having to lower their interest rates, which is cutting into their margin,” said Adamson.
A case study of CommBank’s net interest margin over time supports this theory.
In many ways, huge retail banks like CommBank and Westpac are stuck between a rock and a hard place.
Customers are choosing to work with brokers more than ever, but with large fixed costs, banks must also justify keeping their branches open to the public. Maintaining robust proprietary lending volumes will undoubtedly play a part in that.
“I feel that strategy overlooks one critical thing which is what the customer actually wants,” said Adamson. “Today’s borrowers value choice, transparency, and having someone in their corner. That’s why brokers continue to gain market share, and I believe that trend will only accelerate as customers demand more personalised service.”
