01 Mar Bank says broker fees would remove conflicts
Bendigo and Adelaide Bank has told the Productivity Commission that fees for service would remove potential conflicts of interest, but that such a change would have “significant and varied implications”.
The Productivity Commission (PC) had posed the question in its draft report into competition in the Australian financial system of whether consumers should pay service fees, with the aim of finding out if such a model would ensure consumer interests are being served without any conflicting commercial influence.
In a public hearing on Wednesday (28 February), Travis Crouch, divisional CFO for revenue at Bendigo and Adelaide Bank, contended that a “fee-for-service brokerage [would] remove the inherent conflicts involved in a commission-based structure and ensure fees earned are aligned with the value of the service provider”.
The representative explained that the bank relies less on mortgage brokers than other banks, as its primary focus for the last two decades has been on developing a strong branch network.
“We have been focused on the development of a strong branch network primarily since the advent of our community banking model, some 20 years ago, where communities can open a branch of a Bendigo Bank as a franchisee. That remains a reverse enquiry model… We’re not out there selling to a community that you should open a community bank; rather, [the] community comes to us and [says], ‘We would like to open a branch’,” Mr Crouch told the PC in the hearing.
“There is a significant process including feasibility studies [that] they need to go through to show that they could be successful. But we continue to increase our branch footprint primarily through that community bank model.”
Mr Crouch further explained the difference between the organisation’s Adelaide Bank and Bendigo Bank brands, saying: “Our brand that we use in the broker market is the Adelaide Bank brand. The Bendigo Bank brand is our retail offering through our retail and community bank network. The Adelaide Bank brand is effectively an online brand once you take out the mortgage through a mortgage broker.”
Trail “an absurd option”
In response, a PC representative commented that if Adelaide Bank is ultimately an online brand, paying trail commissions must be an “absurd option”.
“For the average loan, $665 per year in perpetuity for an online-based product seems very expensive,” the PC said.
“You presumably have very little choice about that because, as you say, you have to play in the market.”
The Bendigo and Adelaide Bank representative agreed with the comment, drawing back to why the bank believes that a fee-for-service model is “more appropriate”.
~ Credit The Adviser