The top 200 mortgage brokers in Australia earn around $2.5 million a year each, the financial services royal commission was told today.
Rowena Orr, senior counsel assisting the royal commission, was questioning Commonwealth Bank CEO Matt Comyn about the role mortage brokers play in banking.
The hearing was told there are 1300 brokers earning more than $1 million.
Of those, the top 200 were getting around $2.5 million each.
The Commonwealth, through its broker channel, pays upfront plus trailing commissions to aggregators who then pay commissions on to the brokers.
Orr: “You’ve been in favour of moving away from a commission-model for mortgage broker remuneration for some time, haven’t you?”
Comyn: “Yes, I’ve done a lot of work on this topic.”
He says the bank is trying to find a level of commissions to maintain viability of the system and not to disadvantage people already in the industry.
Orr told the hearing that the Productivity Commission had said that trail commissions were most likely a traditional form of remuneration common in the 1990s when brokers emerged as a competitive force.
This method of payment persisted long after it has been found detrimental to consumers in other financial product markets, she said.
Comyn told the hearing that banks in the UK are shutting branches because their customers are dealing with intermediaries, such as brokers.
At the Commonwealth, about 40% of home loans are broker-originated. At Bankwest, it’s 75%.
The commission was told broker-originated loans generally have higher initial loan-to-value ratios and are more likely to be interest only, particularly for younger home buyers.
Broker revenue on the average loan was $6627.
Comyn said broker revenue had increased by almost 50% as house prices rose.
One option was to pay a flat fee to brokers, rather than one based on the size of the loan.
Under this scenario, the fee to brokers would fall to $2310.