Banker admits broker worries

THE Commonwealth Bank believes customers can suffer because of the commissions it pays mortgage brokers, but says it won’t dump brokers because it will lose sales.

At a hearing of the banking royal commission yesterday, it emerged CBA chief Ian Narev raised concerns a year ago that incentives given to mortgage brokers “can potentially lead to poor customer outcomes”.

But a senior executive, grilled at the hearing, said the bank would not dump commissions for mortgage brokers unless its rivals did the same.

Commission head Ken Hayne questioned why the bank wanted to ensure “broker networks remain viable”.

Counsel assisting the commission Rowena Orr, QC, also asked why the lender had not abandoned the controversial practice of paying higher commissions — including trailing commissions — for bigger loans.

In reply, CBA general manager of home buying Dan Huggins said scrapping the broker commission structure without the other three banks doing likewise would harm profits.

“There’s a first-mover problem in that the [bank] who moved first would lose a lot of volume,” he said.

“It would need to be done on a uniform basis, otherwise what is a very important business to the CBA could be very substantially damaged.”

But he agreed the system was flawed, saying “we have acknowledged there is a conflict in the commission structure”.