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ISSUE 8.14 July 2011
Bank wars could see commissions rise
Gerald Foley
Brokers could see a reversal of commission cuts as banks compete for market share
After an erosion of commission income since the global financial crisis, third party brokers may begin to see some upward movement on their remuneration as banks shake up commissions. National Mortgage Brokers managing director Gerald Foley said the competitive price war being waged between major banks could soon potentially spread to the mortgage broking arena. The well-publicised mortgage
price war between the big four has seen a series of initiatives and price discounting designed to boost market share in a lower credit growth environment. As the majors head towards an increasingly dominant share of the mortgage market, Foley said the big four will fight amongst themselves to wrest customers from each other. Though he believes banks can cut interest rates more without sacrificing their margins, Foley said the majors will eventually reach a place where the only way to increase volumes will be to make their proposition to brokers more attractive – and this may turn attention to commissions.
“I think the banks will work through the process to get to market dominance, then they will start to say, ‘OK, the banks have gotten to 95%. How can we go from 15% of that to 25%?’ That stuff will be the next level. The only way to do that without corrupting their whole book will be to bring a better proposition into the broker space,” Foley commented. Possibly heralding such moves, St.George recently announced a streamlining of its commission structure to revive year-one trail, which the bank had scrapped in November of last year. The commission changes are both give and take, with the bank now applying a 15bp trail for the life of the loan, rather than its previous structure in which trail increased to 25bps by year five. Foley said the move could bring more brokers into the St.George fold. “St.George and Westpac have been trying to get more business off less people, but they’ve gotten to the point where they’re writing all they can. For those lenders to get more business you need more people writing,” he said. While Foley believes the banks will continue to fight to win over both borrowers and brokers, he commented that any changes to the big four’s value proposition could be temporary. “The banks have come down a bit on their margins. Once they’ve gotten to that market dominating position, though, they will begin to sneak them back up.”
Carbon crunch Warnings over carbon tax impact on mortgage payments Page 4
‘No-go’ canned Mortgage Choice reversal over potential ‘no-go’ client fee Page 6
Comms clarity CBA to review commission bonuses to improve transparency Page 12
Inside this issue Analysis 20 The consolidation squeeze Opinion 22 Century 21 on the market Viewpoint 23 Are FBC clawbacks viable? Market talk Brokers on Queensland
24
Insight The BDM sales ABC
26
People 27 PLAN, ING Direct people moves Caught on camera 28 NAB Broker business lunches