Two industry leaders believe the debate over vertical integration will lead to an increase in boutique aggregation groups.
Speaking to Mortgage Business, Homeloans general manager of sales Ray Hair compared the current noise surrounding bank-owned aggregators to the financial planning space, where banks control the majority of distribution.
“You look at what happened in the financial planning space and the squeeze in the profitability of financial planning dealer groups and in mortgage aggregation groups and by default if you are going to provide those services you need to have a way to do that, and that is about product, and hence product manufacturers have taken control of distribution,” Mr Hair said.
“It happened in financial planning and it’s happening in mortgage broking,” he said.
Mr Hair said the response to bank-owned distribution in financial planning has been the “breakaway” of boutique and independent dealer groups.
“That is what you will also see in mortgage broking,” he said.
Vertical integration in mortgage broking has been a hot topic of the Financial System Inquiry, particularly after the interim reported highlighted potential conflicts of interest.
Up until that point, the discussion had largely been confined to the wealth management space.
It now appears to have polarised the third-party industry, which awaits Murray’s final report next month.
Speaking to Mortgage Business, Outsource Financial chief executive Tanya Sale said brokers are becoming “very concerned” about the number of aggregators that are now owned by banks.
“When I speak to any of our loan writers, I think they want things to go back to the way they were,” Ms Sale said.
“The broker industry was born because of all the independents coming out, like Aussie John used to say, to ‘keep the bastards honest’,” she said.
“Brokers want to go back to that more and more and that is why I honestly believe the independent aggregators will grow stronger and stronger.”
A recent Mortgage Business poll of 193 readers found 79.8 per cent believe a conflict of interest is created by vertical integration, while 20.2 per cent said no conflict is created.
“What we are seeing, definitely from the new entrants, is that they want to be with an independent group,” she said. “The new entrants want independents.”
Over the next few years Ms Sale expects to see independent aggregators gaining momentum as the industry continues to question vertical integration.
“It has now become more visual,” she said. “There is a lot being said about it.”
Ms Sale believes a key turning point for the third-party channel was the mention of vertical integration in mortgage broking by the Financial System Inquiry’s interim report.
“That was the big thing that really backed it up,” she said.
However, according to national brokerage Mortgage Choice, having a 17 per cent major bank representation on its share register does not distort a broker's lender recommendations.
“Unfortunately there continues to be far too much misreporting on this issue,” Mortgage Choice chief executive Michael Russell said.
“While it is true that a number of bank and non-bank lenders do have a stake in several aggregators and franchisors, in most cases they do not own the individual broker businesses that operate under these head groups,” he said.
“These individual broker businesses take great pride in always acting in the best interests of their clients, irrespective of who owns their aggregator or franchisor.”
Similarly, Aussie Home Loans executive director James Symond said CBA's ownership of the group has no influence over its brokers.