Mortgage brokers brace for reforms; Bendigo Bank responds to Royal Commission

The 76 recommendations of the Royal Commission into the Banking, Superannuation and Financial Services Industry were today released, several of which related to mortgage brokers.

One, in particular, sought to address a conflict at the heart of the service brokers provided. 

“A borrower who engages a mortgage broker looks to the broker for advice. The advice the borrower wants is what the broker thinks will be best for the borrower,” Commissioner Kenneth Hayne observed.

Yet, the lender pays the broker’s commission.

Mr Hayne said the remuneration model could reasonably be expected to influence the broker’s suggestions.

He recommended the system be gradually changed so the borrower pays the broker.

The federal government has committed to act on all 76 of the Royal Commission’s recommendations, but was cautious about plans for the mortgage broker remuneration model. 

“The government recognises the importance of competition in the home lending sector and will proceed carefully and in stages, consistent with the recommendation, with reforms to ensure that the changes do not adversely impact consumers’ access to lenders and competition in the home lending market,” it said.

RELATED: 

Smartline Bendigo director Glenn Harrison said interest in the services of mortgage brokers in the Bendigo area was extremely high.

He said it was important the finance industry continued to be competitive and all stakeholders’ interests were balanced when making changes.

“Mortgage brokers typically offer more than 30 lenders to choose from,” Mr Harrison said.

“If you’re in a regional area, you may only have the benefit of one bank in town and therefore access to other lenders and competition becomes even more difficult for consumers.”

He believed the focus on banks themselves had been lost during year-long Royal Commission.

“I think some of that core focus got spread and diluted,” Mr Harrison said.

Bendigo and Adelaide Bank is still reviewing the 951-page final report.

“It appears to be, as we would have expected from Commissioner Hayne, a very well thought through and considered document,” Marnie Baker, the bank’s managing director, said.

Bendigo and Adelaide Bank has positively received the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“As we have said in the past and continue to say, we will always welcome actions that put the interests of customers first, raise professional standards in the industry, encourage fair competition and deliver better outcomes for all Australians,” Marnie Baker, the bank’s managing director, said.

Several of Bendigo Bank’s practices were referenced in the final report, such as its remuneration models.

In a document damning of the structures in banks and financial institutions that rewarded self-serving conduct, it was noted that Bendigo Bank provided fewer incentives for its employees to prioritise personal gain over a client’s best interests than some of its industry peers.

The Royal Commission made the case for alternatives to sales-based incentives and commissions, and provided Bendigo Bank as a positive example of how this could be achieved.

RELATED: 

The bank’s chair, Robert Johanson, was quizzed on its remuneration structures during the seventh and final round of hearings.

“Mr Johanson explained that Bendigo had removed all sales-based incentives and commissions for front line staff more than 10 years before,” the report said.

“Those incentives and commissions had not been prevalent within the bank prior to that time.

“When asked whether the lack of sales-based incentives and commissions had affected employees’ motivation to serve their customers, Mr Johanson said that it had not: the bank’s employees got their satisfaction from ‘being trusted’ and from customers ‘feeling [that] they’re doing a good job’.”

Mr Johanson’s insights were also referenced in relation to home lending through mortgage brokers – one of the more controversial aspects of the Royal Commission’s recommendations.

“Brokers are not the only means by which smaller banks deal in that market,” the report said.

“Most home loans made by Bendigo and Adelaide Bank are made through the bank’s network of community owned branches.”

The report went on to present the arguments for changing the way mortgage brokers are remunerated, including how they would apply to the Bendigo model.

Have you signed up to the Bendigo Advertiser's daily newsletter and breaking news emails? You can register below and make sure you are up to date with everything that's happening in central Victoria.