CBA chief executive Matt Comyn has defended the bank’s decision to ignore the Banking Royal Commission-era recommendation to cap banker bonuses, highlighting that mortgage brokers operate without any restrictions on their compensation.
During a parliamentary inquiry on Thursday, Comyn accused regulators of having an “undue level of concern” when it came to banker remuneration.
The comments come as the third-party channel increasingly dominates mortgage lending, with 74.1% of residential home loans being written by mortgage brokers.
In April 2024, Commonwealth Bank was the first major lender to raise its maximum bonus pay to 80% for certain employees. For example, a CBA banker earning $200,000 per year could earn $160,000 in bonuses under this arrangement.
This disregarded the recommendation stated in the Sedgwick Review, which restricted the maximum bonus to be 50% of the proportion of fixed pay – a recommendation that Commonwealth Bank had agreed to three years earlier.
As pointed out by the House Economics Committee, ASIC had said that the change was disappointing as there is “ample evidence” that variable remuneration arrangements and incentive selling result in “poor outcomes for consumers”.
In an Australian Financial Review article, Elizabeth Sheedy, professor at the Macquarie Business School at Macquarie University, said she was not surprised by the CBA changes, but their controls should be put under scrutiny.
“The risk is people become short-term focused, and do dodgy stuff, like exploiting unsophisticated customers. If they start engaging in misconduct, things could blow up again badly, in the same way they did pre-Hayne,” she said to the AFR in April.
While the decision certainly raised eyebrows at the time, CBA’s motive was clear: to rip up the well-trodden path of banker-to-broker.
The promise of greater flexibility and independence has been an alluring prospect for bankers for decades, but the mortgage industry’s recent command over mortgage lending has caused swathes of bankers to switch industries.
CBA’s disregard for the Sedgwick recommendations, which were endorsed by the royal commission, stems from this fact.
“The (bonuses) apply to what we would describe as proprietary lenders, mortgage lenders,” Comyn said. “Personal bankers who serve personal customers to meet their home loan or mortgage needs.”
The executive also drew a comparison between the practices of bankers and brokers.
For example, Comyn said that the scorecard that determines a bonus is equally weighted three ways:
“If you’re a proprietary lender in the Commonwealth Bank, you have an extensive oversight and monitoring, which is applies to what we call a risk gate, which means, if you fail, you get nothing,” said Comyn.
Ironically, many of these checks and balances were brought in because of the recommendations in the royal commission and the Sedgwick Review.
Comyn then highlighted the bank’s disadvantage compared to brokers – with the qualifier that he’s “not alleging that this is a problem per se in the mortgage broking industry”.
“We have 1800 home lenders, there are approximately 20,000 mortgage brokers…There is, as a matter of fact, no balanced scorecard. There is no fixed pay. They are entirely remunerated based on the number of loans that they sell,” Comyn said.
“There's, of course, their own regulatory obligations and things that have come in from a best interest duty perspective, but we felt that we were putting ourselves at a significant competitive disadvantage.”
Comyn said the bank now thought the recommendation was unfair.
“There are remuneration practices that we were limiting our people to, and we see it still as a much lower risk channel than the mortgage broking channel.”
Unsurprisingly, these comments drew the ire of some in the mortgage broking industry.
Tim Brown (pictured above), CEO of Recludo Mortgage Broking Services, said that Comyn continues to remove the focus from the bank’s inability to compete with brokers on service and trust.
“Matt goes onto to explain that brokers have no cap on earnings, but I can guarantee you that not one broker in the mortgage industry would even come close to what his executive team earned in the past year with salary, bonus and options.”
For reference, Comyn earns $10.4 million per year.
Brown said that what Comyn fails to point out is that brokers are not guaranteed an income, they do not get paid holidays, they don’t get long service leave, and they don’t get sick leave.
“Comyn then goes onto suggest the brokers should not be entitled to trail income. What he doesn’t tell you is that the Banks created trail income so they could defer the payment upfront over a longer period,” Brown said.
“In the USA and Canada brokers get paid over 1% of the amount lent, where in Australia we get paid 0.65% of the amount lent and a trail of 0.15%. I noticed Comyn is not suggesting he increase the amount of the upfront fee to remove the trail component.”
“Let’s get real, brokers are far from the highest paid people in the banking industry.”
The House Economics Committee moved on to the broader issue of how some of the practices called out during the royal commission seem to be “creeping back into the big four banks”.
“Now I think you were the first to move here, but it's being matched by others,” a committee member said referencing how other big four banks have also increased their bonuses.
Comyn said he understands the concern and while he can’t speak for other banks, they must be alert to the same issues CBA are seeing.
“It simply cannot be that there is an undue level of concern over – we’re talking a few hundred lenders versus the 20,000 mortgage brokers that don’t have any controls,” Comyn said.
“I certainly acknowledge these concerns, but they must on the same point be dwarfed by other concerns and other aspects of the industry.”
While Comyn may argue that banks face more checks than brokers, the numbers don’t lie.
With nearly three quarters of all borrowers going through a broker, Australians are voting with their feet.
Since the royal commission, mortgage brokers are equipped with Best Interests Duty (BID) – a fiduciary obligation to provide the best service to borrowers - and a whole panel of lenders to choose from.
Lenders on the other hand only have their own products and a set of guidelines to follow.
While CBA understood the concerns brought forth by the committee, Comyn said “ultimately, we’ve got to make the best decisions in the interests of Commonwealth Bank.”
That leaves one to consider a different question: What is the best decision in the interests of the customer?
For CBA, the answer might just be to embrace the broker channel, and the major banks might just have to get used to that reality.
