ABC’s 7:30 Report: Brokers’ independence under threat, borrowers to suffer

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By Jill Fraser

Are big banks abusing their market power?

On Monday night the ABC’s 7.30 Report put this question to amongst others, the Australian Institute of Professional Brokers’ (AIPB) Maria Rigoni, Yellow Brick Road’s Mark Bouris and Brand Management’s Andrew Inwood.

Prompted by Treasurer Wayne Swan’s announcement that the Government’s guarantee scheme would end on 31 March the 7.30 Report debate examined the consolidation of the banking sector and the control of the Big Four banks.

Inwood noted that the CBA and Westpac are holding between them about 50 per cent market share. He added “we’re facing a system where we have two banks dominating the market to such an extent that they’re now starting to reject deals which aren’t perfect for them”.

Bouris claimed that consolidation is dangerous because with competition disappearing and “the four big banks, can do what they want”.

Rigoni championed the broker. Expressing her long-held view that the independent finance broker is in danger of extinction, she argued, “the cost to the consumer is that credit products will become more expensive”.

7.30 Report business editor, Greg Hoy said, “independent mortgage brokers like Maria Rigoni say big banks have begun to make life increasingly difficult for those who shop around to find the best deal for each borrower”.

He quoted Rigoni’s who, raising the issue of volume-based accreditation, said. “You want to deal with us, deal with it our way. We’re not listening to you, you know. We are big enough to be able to command you to give us so many deals, because we have so much of the market.”

Hoy noted that the Bankers’ Association would not comment on this so the 7.30 Report wrote to each of the big four banks. He said, each denied they’ve been making life harder for brokers, though they say they are lifting standards, which is like waving a red rag at the bulls of broking.

Speaking to Lending Central this morning Rigoni said while she was satisfied with the overall thrust of the segment, she was disappointed that a number of her comments regarding the volume requirement for accreditation were left on the cutting room floor.

“I find it (volume-based accreditation) morally and ethically wrong,” she said.

“Technically I believe it’s against the Trade Practices Act because it’s trying to eliminate a class of efficient competitor and that’s a really serious issue.”

Rigoni said that the AIPB plans to use the mainstream media more in 2010 to get their message across.

“We are the voice of brokers. While we may be small we’re loud,” she chuckles adding that other industry bodies are failing to get out there reminding consumers what a valuable commodity finance brokers are and alerting them to the fact that if lenders don’t engage in fair play they’re likely to lose brokers.

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35 COMMENTS

  1. It is time the MFAA stopped being a puppet of the banks and started to stand up for the whole industry.
    The banks are making it increasingly difficult to deal with them yet their own mobile lenders are getting special deals, if this type of behaviour is not market power abuse what is?
    How about processing time for applications in some banks it is obvious that they are slowing up on the broker’s applications.
    The customer is the one that is missing out here, as the big banks smother competition from brokers who look after their customers then the customer will end up paying more for less.
    The tax payer has contributed a lot of the last 2 years via guarantees etc for the banks, what are they doing for the taxpayer?
    The banks are also slowing down funds to developers for new housing. I wonder if this might have anything to do with ensuring a shortage of houses and keeping up the value of their security on existing houses, some of which they lent to much on????
    The MFAA is good at taking fees for membership , for their COSL off shoot and for training session, the question i have is what are they doing for the brokers?

  2. There is no doubt in my mind, or most intelligent thinking brokers that the big 4 are screwing us and trying to force us out of the market.

    BUT IT WILL NOT HAPPEN.

    Soon more funders will come back in the market and then it will be REPAY DAY 🙂

    To thise lenders who are forcing volumes on us, just wait maaaates, we brokers have long memories.

  3. Hats off to you Maria for trying – I have not renewed FBAA and I don’t want to renew MFAA so I will reconsider AIPB – it would help if they can get some lenders to recognise them.

  4. I agree with Steve. The Banks have all the power and they are using it to reduce the broker market. How can a lender insist on me writing a number of loans through them when they don’t have the best product for my client, apart from the fact that I don’t choose the lender my client selects from the options I provide. Isn’t that what broking is all about.
    I certainly can’t sell their product on service over interest rate because there is no service.
    Perhap I should only recommend the lenders who offer a suitable level of service…ING, Homeloans Ltd, AFM etc.
    Possibly the only reason to keep those other accreditations is to look after existing clients. ???.
    What would happen if we all started moving our clients existing loans???
    If I no longer hold an accreditation for that bank then should I move the loan so I can continue to service that client at a standard they expect … they certainly won’t get service from a bank.
    MFAA needs to take a stand…but they won’t. Maybe I should move to AIPB…..at least they are out there supporting us.

  5. Imagine if the banks ‘logic’ was applied to other professions. A country GP’s patient is refused admittance at a big city hospital because the GP didn’t send enough patients last year, or a bus refusing a passenger because last year he chose to go to work by car.
    Stupid isn’t it.
    My problem though is with the brokers who continue to slavishly comply and send deal after deal to banks like CBA and (God forbid) Westpac when there are clearly other and mostly better alternatives.
    Clearly we cannot expect the MFAA to lead on this and aggregators have not found a workable solution either, so vote with your feet people, vote with your feet!

  6. I agree with a suggestion that CBA and WBC want better quality deals because they can afford to do so with the market share they hold. However clients that are using brokers do it for a reason, because banks will never be able to give them what us brokers can. Banks can give them loans but they can never give them another Ken or Sam or Ray or Steve. Indeed we ought to act with dilligence and present our clients with as many options as possible and if they don’t want CBA so be it. And if I loose my accreditation well I didn’t need one in the first place. And if it happens that I need to submit that one loan with CBA I will ask my broker buddies who do hold an accreditation to do it for me. Cmon guys chin up we are brokers for a reason……we are smarter than the banks!

  7. The programme has highlighted what we all know , the CBA & Westpac want brokers out of the system , despite their platitused to us . Any body who cut commissions and trails like these two did and then put programmes into place that make it impossible to deal with them clearly have that in mind.

    There are other alternatives , the ANZ have a committment to Brpkers and there are other Non Bank alternatives which offer very competative products .

    I do not always agree with Maria Rigoni’s comments, but she is spot on.

    BROKERS IT IS SO SIMPLE SEND YOUR DEALS ELSEWHERE do not deal with the CBA or Westpac.

    Pepole come to us because they want to deal with a person who they can talk to and they feel comfortable with,we owe it to our clients to take them to a competative lender who cares and respects our relationship with our client.

  8. Steve through to Zak, all excellent thoughts and comments.

    Sadly there are too many brokers who blindly fall in line with CBA & Westpac’s demands. I proudly admit that I am no longer accredited with CBA. Their products are very run of the mill, & enough’s been said on other blogs already on their service discrimination between channels & the even larger issue of channel conflict.

    I have not needed to use either CBA or Westpac once in the last 12 months. As far as I know, it has not cost me one client.

  9. I agree that we need to ensure that we don’t allow the banks to dictate where I deals go. I guess what I also feel though is that this industry can no longer tolerate brokers that submit one deal every 1-2 months. If we are going to ensure this is a professional industry, it needs to have commitment from the players that are involved. I know personally that if I don’t use a particular lender for a while, when I go back to use them there is a greater chance that there will be issues due to familiarity with their processes and products

    Therefore there is a balance here where if the banks want quality, I do believe that to achieve quality the brokers need to ensure that they are committed to staying up to date with what is going on. Unfortunately volume is one way of doing this

  10. Sorry Hamish that’s twaddle. If CBA are offering rubbish service and mediocre products I won’t recommend them until they pick up their act – that might be 3, 6 or 12 months. Why should I be penalised for their poor performance. You talk about professionalism, I act in my clients best interest. I reckon recommending and writing CBA deals just to keep your accreditation is the antithesis of professionalism – where is your independence – you are accepting CBA’s dictate. Where is your integrity if you write business just to stay accredited. If that’s professional then prostitution is indeed a profession and brokers who comply with this are prostituting their service to CBA at the expense of the their clients.

  11. Of course another way to improve quality is to have:
    1. clear, consistent, comprehensive policy documents and broker scenario support that can be relied upon,
    2. straight forward application process with consistent credit assessment and pricing decisions,
    3. sensible processing ie: not sending out loan documents before the valuers report is in hand – I have current deal with 3 sets of loan documents issued in less than a week, not my error theirs.

  12. Hamish, I see where you’re coming from, but as KC says, it’s a two way street.

    At the heart of all of this is that

    1. The big four (mainly Westpac & the CBA) dominate the market and while they can, they simply manipulate 3rd party distribution in a way that suits there business models. At the heart of this is simply sales, nothing else.

    The CBA & Westpac use the cover that it’s all about ‘lifting the standards of the industry, but that is disingenuous crap. It’s actually a fear campaign designed to ‘brow beat’ the majority into selling their product.

    Now, if I were a lawyer & needed to research statutes and common law in order to prepare for each case that I conduct, then that is simply a necessary part of my job. Laws are fluid and need to be researched regularly to ensure currency.

    So as Credit Service provider licencee (with the regulator saying I’m competent to hold such a licnce) and so long as I can demonstrate ongoing competance (via CE points or similar, just like AFSL holders have to do) then no amount of ‘spin doctoring’ from the Banks PR departments would be relevant.

    Mortgage lending is not rocket science. If banks provide online credit policy and interest rate information that is current and clear, then where’s the problem.

  13. I was at my own bank today as one corp manager said to me,the lenders are over brokers and how they paint up deals and yes they don’t want broker loans either do the mortgage insurance companies.
    I for one believe that the new credit code will wipe out many brokers.
    Most legal firms have all indicated the days of private lenders will end.I for one have advised all my clients to get out of this form of investment.
    Pity as both lenders and borrowers will be the ones left out.

  14. Try getting a deal set with the CBA/Westpac!
    Yet the client can work of the street and get it approved.
    Two sets of rules,yep they don’t want our business.

  15. Phil, being a lawyer you should know that’s just hearsay from a direct branch lender, possibly struggling to compete with brokers that can actually get out and see clients, instead of waiting for people to walk in his/her doors – as you did. I for one believe that the new code will strengthen broker credentials as newcomers to the industry will need to seek an established operator to work under and create a proper succession of business and continue to improve professionalism.

    Listen all you like for example to the 600 new branch managers at Westpac who will take well over $100 Mill off their bottom line – they’ll also tell us brokers are doomed. But Westpac has already had to increase their rates well beyond RBA cash rates to pay for them. For other banks planning same, do you think that by fetching up clerks and changing their title will instantly give you world beating business writers? Banks have increased their share, even with brokers in the market (pre supermanagers) so their decision to change that will backfire.

    When I started broking in 1989, people laughed then too, so maybe its a good thing that the observers are again underestimating our resolve.

  16. Some good comments all round. As a regional broker, we are also seeing the same inconsistencies between broker & branch. Key Change, Steve & SM are spot on in their comments, if the banks service levels slip & there rates & credit policies have dropped, we don’t have much choice than to use another alternative.

    The start of last year CBA was competitive & we wrote a lot of business with them & we have approx 30% of our book with them, the second half their serviceability decreased which made it harder to deal with them. No business written for the next 6 months, so it was see you later Mr. Broker, SHOW ME THE MONEY & we will let you write business with us again. The way things are at the moment it will be hard to write 4 deals with them in the next 6 months so another $500.

    Unfortunately, if we are not accredited with the lenders on our panel, our aggregator will also show us the door. Don’t see that as a win situation for the broker or the customer.

  17. To Mid north coast broker,

    Your story sheds some light on the darker side of CBA’s policy. I’m sure your story is echoed hundreds of times over. I sympathise with your predicament.

    The truth is (as many have pointed out in other blogs) CBA are hostile to brokers. They are flexing their muscles with reduced commission both up front and trail, no trail in first year, & demand for 8 deals / year else they’ll cut you off. These are all hostile actions. And don’t be surprised if they move further against the broking industry.

    Sounds like you might have some regrets over your choice of aggregators. Sadly a number of aggregators also have nasty hand cuff clauses. I’m assuming yours is one of them. Otherwise, cut and run to a new aggregator and leave CBA to torture those brokers that are too blind to see CBA’s end game.

  18. I honestly believe that brokers are here to stay. There is just no way a branch can compete with a broker with good experience and knowledge.

    KC you have totally misinterpreted what I was trying to get across. I will acknowledge that my business through CBA has dropped dramatically over the past 2 years, however there are times where I need them if I am going to look after the client as they still have some unique policy areas which are good to know about and have come in handy. Eg casual employee that has only been in place 3 months and only having 10% deposit. Please tell me where else I can go to get this sort of deal placed and I will use them

    KC acting in your clients best interests is also about having a wide range of choices and not getting to a point where you only have a small variety of lenders to choose from. CBA is a necessary evil.

  19. Hamish – sorry but when they force us to write deals just to stay accredited it has to compromise our integrity. I for one couldn’t care less if the cancel me – like someone else said, I will get a mate to do a CBA deal for me if I have to.

  20. The MFAA was orginally set up by non bank lenders who could not join the Bankers Association. They soon invited in brokers, valuers and solictors, all this was at a time when banks not only did not pay brokers but refused to even look at a broker submitted deal.

    When the banks saw the potenial for broker volumes, they became the major sponsers of the MFAA. It soon grew in infrastucture and recognition thanks to the bank’s dirty money.

    Without this money the infrastucture that was built would collapse and many MFAA employees would be out of jobs. Many councilors would lose their power base, and many service providers would lose the platform that elevates them above what they have been able to achieve in their own businesses.

    Behind the facade of supporting competition, the banks have been able through the MFAA to sneak under the radar and make life unbearable for competition using subtle means like driving legislation that would put strains on non bank distrbutors over bank distribution on the pretence of protecting the consumer from unscrupolos brokers. I suppose they consider the term unscrupolous banker an oximoron. Or is it that once a bankers resign to become a brokers they are no longer immune from unconsonable conduct.

    The fact that the CBA (one of the biggest sponsors of the MFAA) never sponsored a single employee to become an MFAA member, yet the head of Broker Division for CBA was the NSW MFAA council president for half a decade is very telling of the direction the MFAA was taking.

    So now, the main aim of the MFAA is to keep the major banks happy without losing too much of its membership. Too late. Membership is the lowest it has been for over a decade and the main revenue driver now is sponsership. The banks have also returned the favour to the MFAA by insisting all brokers be MFAA accerdited.

    To all the exec’s at the MFAA. The party is nearly over. Soon the banks wont be dealing with brokers and the need for sponsorship will be over, so without members or sponsors, I guess you could all be out of jobs?

  21. The real issue will be when none of us brokers will be able to get PI insurance!
    Then where will the MFAA,COSL and lenders sit with brokers.
    My insurance has told me that once the new National Credit Code comes in that they will be out of the PI insurance market for finance brokers.

  22. What’s all this pessimism? “banks wont be dealing with brokers”, “brokers wiped out”, “won’t be able to get PI”. Di, a few years ago my PI cost $6,800 for two brokers with sevral years PI under our belt, no claims ever – but we paid it and its now a fraction of that.

    Zak said it best up there “c’mon guys, chin up, we’re brokers”. Please, leave now, go if you think the sky is falling in, but its only rain.

  23. You know the sad thing is CBA, Westpac, NAB, St George probably arent even aware and dont give a damm that I haven’t given them a deal in almost a year anyway. Hasn’t stopped my production. Clients don’t mind when I tell them I don’t deal with those institutions.
    Usually, when I meet a customer of these institutions, they ask me to get them the hell out of there.

  24. My firm holds a R/E license,as of the end of 09/10 year we will be pulling out of the market place.
    1.Tired of dud broker deals
    2.Credit laws.
    Another $100 million that will be invested elsewhere and not in mortgage security.

  25. I actually think there is more to it then quality and volume. If we do not do enough deals on an ongoing basis then we lose our accreditation irrespective of the amount of ongoing loans we have with them. Once we lose our accreditation then the client needs to go to the bank should they need to increase the loan. CBA and Westpac (and BankSA/St George) are making it easier to take all the ongoing commission off the brokers because we cannot service existing clients once our accreditation is gone.

    I am justing waiting for the major banks to start putting product volumes on financial planners as well because most investments are now placed through platforms owned by guess who (the major banks).

  26. We have started a deliberate refinance policy ie: all clients outside of clawback period with lenders who have removed my accreditation are being offered alternative deals with enticements such as we pick up the discharge costs. We send them regular updates on good offers or good service so that one slip by the lender will hopefully result in a phone call to us. We will also be doing this with RAMS regardless of clawback period and probably with Heritage (sorry guys but you shafted us). If they want to steal our clients they are going to get a fight. If we all do this then in 6 or 12 months some lenders might notice.

  27. Likewise, where we see an opportunity to refinance a client from a lender such as RAMS, we’ll happily contribute to the switching fees as long as the client is out of the clawback period. Of course, we consider their exit fees too. If they make it impossible for us to provide service to our clients who are with them, they leave us no choice.

    Because, unfortunately for the banks, we’re in business because of how we operate and the value we add to our clients. I’m not pursuing re-accreditation either with CBA, who can go jump. I’m happy to guide clients who prefer to stay with them and need to restructure, as I know the clients will come back to me. Usually sooner, rather than later.

    As long as the major banks continue to provide poor service, we’ll be in business because our clients continue to return and refer business.

    BTW, yes, you can walk into a bank branch and get an approval. It’s a conditional approval and they hardly ever turn into anything more meaningful. Lots of clients have been referred to me after being unable to get their bank to give them a loan. Only one part of the system seems to be working, which is fine by me.

  28. Gooday Key… (Keychange),
    Proud of you Son. At last another Broker with the B*lls to “Come Out” and say what we are in business to do.
    Make a Profit…..ongoing
    Bring New Customers into your business at the expense of competitors…
    Promote the fact you are not there for the big Banks….
    Help unhappy Bank Customers to get some peace…..
    Tell the community you are there to help them refinance….
    Give the customers what they want….and help them do it…

    Makes me want to hang around a bit longer….

    We are not here to be pushed around, we are here to take them “HEAD ON”.

    Go you Good Thing!!!!

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