The big banks are paying lawyers, accountants, real estate agents and financial advisers to flog their home loans, and in many cases consumers have no idea it is happening.
It takes place through what are known as ‘introducer programs’, whereby the bank enters agreements with various professionals to pay them commissions for referring their clients to the bank.
The little-known practice came to public attention this week when NAB fronted the banking royal commission.
NAB revealed that between 2013 and 2016 its introducer program brought in mortgage business worth a massive $24 billion. In that period it paid out around $100 million (or 0.4 per cent) in commissions to its introducers.
These introducers are not technically mortgage brokers, because they are simply introducing clients to banks, rather than selling specific home loans. This means they are not necessarily subject to the Credit Act.
This puts the activity in a regulatory no man’s land.
The New Daily spoke to a number of government regulators and professional bodies. While most agreed that common sense ethics obliged introducers to disclose that they are in the pay of the banks, they agreed there was a lack of clear rules, meaning many would not be doing so.
The banks refused to answer The New Daily’s questions. ANZ and Westpac ignored requests for more information on their introducer programs, while CBA claimed it could not comment because the subject was under the scrutiny of the banking royal commission.
“These matters are being examined by the royal commission and it is not appropriate for us to comment before the commission has conducted its inquiries,” a CBA spokesperson said.
The CBA is not scheduled to face any questions on the subject. CBA refused to answer charges it was using the royal commission as an excuse not to answer difficult questions.
How the banks pitch their introducer programs
CBA says online that it targets seven professional groups: accountants, solicitors, lawyers, conveyancers, real estate agents, financial planners and migrations agents. Other professions are considered on a “case by case” basis.
In its brochure, CBA pitches the program as a way of enhancing professional credentials.
“You work hard to ensure your clients receive the best levels of service and expert advice,” the brochure says.
“So when it’s time for them to look at their home loan options, wouldn’t it be nice to know that the expert service continues? Not only that, but your genuine interest in your clients’ needs can be rewarded along the way.”
The New Daily spoke to professional associations representing three professions: accountants, financial planners and real estate agents. They all took a sceptical view of banks’ introducer programs.
Dante de Gori, chief executive of the Financial Planning Association, said his organisation had no set policy on introducer programs because it did not fall within the remit of financial advice.
Technically, that means if you go to an FPA-accredited financial planner, they could be a member of an introducer program.
However, Mr De Gori said he did not support the practice.
“For any financial planner looking at revenue sources or arrangements outside financial advice, they need to tread very carefully,” he said.
“There’s a key principle for us: is this arrangement in your [the financial planners’] interest or your clients’ interest? If it’s in your interest then it is a breach of our standards.”
Vicki Stylianou, a spokesperson for the Institute of Public Accountants, said there was no rule preventing accountants from referring clients to banks in exchange for commissions.
But she said members of any of the three professional accountancy bodies, the IPA, the Certified Public Accountant and Chartered Accountants ANZ, were obliged to disclose any commissions they were receiving.
But she added only about half of people calling themselves “accountants” were members of professional bodies.
“If you want to call yourself an accountant then that is not prohibited by law. Anyone can hang up a shingle and call themselves an accountant,” she said.
Real Estate Institute of Australia chief executive Malcolm Gunning told The New Daily that real estate agents are required to disclose any payment from third parties in agency agreements.
But this only applies to sellers. Mr Gunning conceded there was nothing to stop agents referring buyers to the banks.
“If they refer the purchaser, the Real Estate Institute would say that should be disclosed. But it is not a legal requirement.”