The first major bank CEO to face the latest and final round of public hearings at the Royal Commission has expressed his view for flat fee broker remuneration.
Commonwealth Bank’s CEO Matt Comyn spent yesterday (19 November) in front of counsel assisting Rowena Orr QC, discussing many of the issues which came about in commissioner Kenneth Hayne’s interim report.
During the hearing Comyn said he supported a flat fee for service remuneration model for brokers and regulation change over trail commission.
He also said he had been in talks as far back as April 2017 considering making the change for CBA, but in the week before feared a “first mover disadvantage” if no one else made the same move.
Comyn was quizzed on research he had put forward to both the Sedgewick review and ASIC’s review into broker remuneration and said that brokers were “sensitive to where the commission structure is set”.
This was due to the findings of one report which suggested that broker flows to lenders increased with higher broker commissions. According to this evidence, one lender gained a 5.9% market share when they offered a limited time commission increase and then lost 5.1% when it stopped.
Orr went on to ask Comyn about emails sent to former CEO Ian Narev, where Comyn had suggested a fee for service model as seen in the Netherlands.
He said it would work the same in Australia, where to level the playing field and “preserve” mortgage brokers, banks would also need to offer a fee to customers for the execution of a mortgage.
He said, “I think it would put a material disadvantage to the brokers if customers paid a broker but they didn't have to pay a similar amount to a financial institution. I think that would create a distortion.”
Comyn said CBA had been looking at moving to a flat fee model back in April 2017, but was concerned other institutions would not follow.
He said, “We were struggling or grappling with how to implement, and I'm sure we will return to it, we felt there was a genuine first mover disadvantage.
“We didn't think it would be replicated, absent regulatory intervention. Therefore, we didn't think we would improve customer outcomes because, effectively, no one else would change their model. We would just originate fewer loans through that channel.”
Confirming Comyn’s stance on the broker remuneration model Orr said, “So you would like to change to a flat fee model?”
Comyn said, “I can certainly see advantages in that model, yes. I would add that that view would not be supported by other participants in the industry but my personal...”
Interrupting, Orr said, “I am asking you about your view, Mr Comyn?”
Comyn replied, “Yes, that is my view.”
Orr said, “You would prefer to move to that sort of model?”
To which Comyn said, “Yes, I would.”
Looking specifically at trail commission, Orr asked Comyn about the services brokers continue to provide after the loan is complete if that was the argument for trail.
Commissioner Hayen interjected and asked if there were any ongoing services supplied by a mortgage broker.
Comyn replied, “I think they would be limited, Commissioner.”
When asked if that meant “limited or none”, Comyn said, “Much closer to none”.
When Orr asked Comyn if he thought trail commissions needed regulatory change, he said “Yes”.
The emails to Narev also discussed how much revenue the broker would lose on an average loan. The broker revenue on an average loan at the time of the email written was $6627 and would be expected to reduce to $2310, in line with the “acceptable band for the price of financial advice”.