A financial services consultant has claimed banks will increasingly try to shut out brokers as the mortgage market becomes more competitive.
As banks compete with increasing home loan discounts, leading financial services consultant Max Franchitto of MGF Consulting Group has told Australian BrokerNews he expects banks to try to increase their margins by promoting their direct channels rather than third party channels.
"Channel conflict is something we have to be aware of and manage on a day-to-day basis. Why am I going to pay top dollar to a distribution channel if I have the option of picking up clients in a direct fashion?" Franchitto said.
JPMorgan earlier this week advised clients in a letter that bank discounting of standard variable rates ran the risk of eroding profitability. JPMorgan's Scott Manning reportedly told investors that 0.9% discounts were "uneconomic" if sold through mortgage brokers. With this level of discounting, and direct sales becoming increasingly economically attractive to banks, Franchitto contended that the growth of channel conflict is undeniable.
"I think industry players that are playing down channel conflict are doing it because they don't want to give life to an enigma that's already happening'" he commented.
Franchitto argued that banks could begin to "cherry pick" the best clients for themselves, seeking to ramp up distribution through branches and mobile lenders.
"I think owning the channel is now becoming a much more viable proposition, and if you look at some of the credit unions they have already moved in that fashion. Mathematics doesn't lie. Mathematics is not a subjective science. Why exclusively pay somebody when you can go direct?" he remarked.
In order to survive, Franchitto argued that the industry would have to evolve into a "one-stop shop" model offering holistic financial services. He said small brokers focusing purely on mortgage sales would face difficulty remaining viable.
"The single mortgage broker sitting in an office purely selling Mum and Dad mortgages, that model has a use-by date. The bigger groups trying to offer a menu of financial services, that's the model that will eventually survive," he said.