During its interrogation of the banking sector, the financial services royal commission lifted the lid on the mortgage broking industry, with some suggesting that its final report would recommend the replacement of broker commissions with a flat upfront fee.
Such a move would abolish the commissions that brokers currently receive years after the loan is issued, with some making as much as $2.5 million a year as a result, according to CBA CEO Matt Comyn.
However, a new study from market researcher Momentum Intelligence suggests Australians are actually much happier paying commissions than suspected.
The overwhelming majority (96.5 per cent) of those who currently use, or intend to use, a broker would not be willing to pay an upfront fee equal to the average upfront commission.
What’s more is that 96 per cent of Australians who use brokers said they were satisfied with them compared to just 67 per cent who deal directly with lenders.
“It is clear that the vast majority of Australians see great value in service provided by a broker. They also believe that they get a better outcome using a broker than going directly to the lender,” Momentum Intelligence director Alex Whitlock said.
Nearly eight in ten broker customers said they had “no concerns” they were indirectly paying a commission.
“This survey was conducted during the height of the Royal Commission where broker remuneration was very much at the centre of many of the hearings. Despite this, the vast majority of consumers still have no concerns about how their broker is paid,” Whitlock explained.
With Kenneth Hayne having now handed his final report to the government who will make it public on Monday, many will look to see whether the royal commission will formally recommend a flat fee structure.
Judging from his interim report, it seems some recommended change seems likely.
“Value and volume-based remuneration for intermediaries in the home loan industry has been an important contributor to misconduct and conduct falling short of community standards and expectations and poor customer outcomes,” the interim report said.
With a high level of scrutiny on the government to crack down on misbehaving banks in light of the royal commission’s revelations, a proposed flat fee could actually help them, Whitlock argues.
“A serious implication of the proposed fee-for-service model is that consumers would be naturally driven to their primary personal bank, which is likely to be one of the big four. This would reduce competition by driving smaller lenders, who rely heavily on brokers, out of the market,” he explained.
“Fewer lenders will give the dominant retail banks the opportunity to increase their margin by pushing up interest rates. With mortgage repayments and household debt concerns looming, this result could also potentially lead to higher financial distress for Australian consumers.”
That warning was closely echoed by Bendigo Bank chairman Robert Johanson during his testimony during royal commission proceedings.
On Monday, it will be revealed as to which way Hayne was swayed.