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Are broker commissions under threat?

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Australian Broker | 28 Apr 2010, 08:00 AM Agree 0
After yesterday's announcement by the government that the payment of commissions to financial advisers is coming under threat some are asking whether mortgage brokers will be next
  • David Turnbull | 28 Apr 2010, 09:44 AM Agree 0
    Why would the government ban broker commissions when there is an economic cost to the lender to attract and settle new business and the client pays no extra. Also the upfront commission is only just adequate and difference between lenders is negligible. I own a Refund Home Loans franchise and we sign an agreement with our clients and show them exactly what we get paid by our whole panel. It is above reproach and the consumers love it. Do the right thing by the main stakeholder, yes the client and we should have no reason to worry about Government change. The Majors are another story!
  • Bob | 28 Apr 2010, 09:45 AM Agree 0
    I can''t see why mortgage brokers should be permitted to be paid a commission from a product provider and have commissions for the life of the loan when most of you do nothi g after the sale. The additional cost to first home buyers would drop proportionatly if this was outlawed.

    Why can''t mortgage brokers charge a fee for service rather than flogging a banks products? Its all the same, its just another financial service and should be regulated as an AFSL Product
  • Pardon Me broker | 28 Apr 2010, 09:51 AM Agree 0
    Please everyone get off the band wagon and stop making ill informed comments or come out and say who you are!!!!! Please recognise that the services we as FINANCE BROKERS provide is completly DIFFERENT to what a financial planner does and the services they provide.
    We arrange loans that meet a client borrowing needs and requirements basically at the same cost at what it would cost for the client to apply to a bank directly assuming that the broker DOES NOT charge an up front fee , which they should not be if they are half way professional brokers).

    Planners and receive a commission for RECOMMENDING INVESTMENT products and placing those investments, The up front commissions will be paid by the investment company from the clients investment to the planner as an up front fee and from on going earnings of the investment as a ''Trailer" it really costs the client actual money.

    The difference is plain to see and I believe that Nick Sherry and Chris Bowen both understand that and from the ASIC seminars I have been to recently they appear to understand the difference.
  • Warren Schrodter National Finance Corporation | 28 Apr 2010, 09:51 AM Agree 0
    With ASIC taking control of mortgage broker licencing, it is obvious every aspect of our industry will be assessed including remuneration. One just hopes that ASIC and the Labour Government understand the key differences between Superannuation commissions and home loan commissions. That is superannuation commissions are paid from the capital invested whereas mortgage brokers are paid by the lenders which is not loaded in to the loan. As long as lenders continue in main to have the same pricing at the retail and broker level, commissions paid as they are now should in no way be threatened unless banks themselves wish to wind back commissions. After saying that, whatever we belive about this topic is irrelevant as ASIC and the Government will have the final say. Our governing bodies need to highlight this difference sooner rather than later if as an industry we are concerned about this issue.
  • Robert Kaya | 28 Apr 2010, 09:53 AM Agree 0
    I think it would be the best idea if brokers negotiate their fees with the clients as long as banks/lenders adjust their interest rates accordingly.We don''t have to wait months to be paid by the lenders.
  • Roger Guest | 28 Apr 2010, 09:54 AM Agree 0
    The Government will target mortgage brokers, you better believe it!Mortgage brokers and Real Estate agencies go hand in hand and will and shouls comew under AFSL legislation. The only fact that mortgage brokers have in their favour is the BIG 4 Banks protecting themselves with continued greed.
  • Peter Fast | 28 Apr 2010, 10:04 AM Agree 0
    You have to look at how the ban on commissions was driven by the Union dominated Industry Funds to arrive at an opinion on what might happen to commissions for Mortgage Brokers. It is basic socialist policy to control the financial sector and therefore the economy so it stands to reason the unions will lead a push to ban commissions and attempt to take over or muscle in on the broking industry.
  • Ben Hall | 28 Apr 2010, 10:07 AM Agree 0
    Yes the government and our corporate watchdog is prone to knee-jerk reactions to public outcry. But A Current Affair and Today Tonight will affect broker business more than government policy. One story about only choosing brokers that refund money will do more damage than any govt policy. However the biggest threat to broker commissions is already going on - and its the brokers themselves. Some brokers are letting the big lenders remove trail and lesser upfront commissions and are simply rolling over and continuing to put business with them. You want commissions to go away then some brokers are acting the right way to make that a reality. And the big lenders are going to act much faster than the government. It''s our choice!
  • Tony | 28 Apr 2010, 10:15 AM Agree 0
    To Bob, you are obviously not a mortgage broker (or not a good one) to be making such comments. All professional brokers provide considerable "after settlement" service to their clients (newsletters, interest rate advice, loan variations, etc.) which is never charged to the client. Their experience and guidance also helps to make the first home buyer process far simpler and less painfull, and it does not add any additional costs to the client.
  • sjncheng | 28 Apr 2010, 10:20 AM Agree 0
    Agreed Ben Hall. Also for Bob who thinks costs would drop in line with commission & trail wind back. You do not seem to know anything about the industry or what has happened over the last 2 years. All major lenders reduced upfront & also trails however not one of them went out & dropped their rates offered through the branch or broker to proportionately reflect this. You have also failed to see that if rates are the same in branch or broker yet a broker charges most people will not use a broker. They are to stingy or lack ability to see value & have false beliefs of who will save money just as you have. I am afraid Bob it is the same across the board when it comes to big business the only guys that get any benefit from commission cuts are the big banks themselves.
  • Peter Conolly AMC ADFP | 28 Apr 2010, 10:42 AM Agree 0
    If the Govt is consistent, then eventually there will be a ban on commissions for Brokers. They just haven''t caught up with it yet as there are others issues they are coming to grips with for Brokers. Different lenders provide different commission structures for Brokers now. So the same logic as applied to financial planners ie bad advice due to getting higher commissions/self-interest etc can equally be applied to Brokers. Furthermore, I received an email from Sen. N. Sherry a few years ago where he stated adamently that Labour had no intent of banning commissions and trails. So much for that statement after the accountants and Consumer Affairs people got onto the band wagon. There is a large piece of political expediency about the new pieces of legislation.
    The argument that being paid via percentages is wrong is one that is also wheeled out periodically as this can lead to corruption and bad advice. But at this stage it is only Fin. Planners who are the targets. Is it only a matter of time before Fund Managers until they too are targetted?
  • John Codrington | 28 Apr 2010, 10:56 AM Agree 0
    Many years ago (15+), the mortgage broking industry was a fee for service business anyway. Today it still is in most cases where commercial products are being negotiated for clients or the use of "privately sourced" mortgage finance for non-coded loan facilities. Already we have seen the major lenders reduce commissions both up-front and trails over the last few years, and I expect that this will still continue to happen to force brokers out of this market. Only the high volume brokers will survive on this commission scale, if they can justify the expenses to operate their practice. All this will do, is to make it non-viable to continue to operate a Finance / Mortgage Consultancy, and for the broker to survive, they will have to reintroduce Fee for Service to be able to provide their clients the services they require, or change their vocation. The bulk of our business is fee for service anyway, so we don''t and neither do our existing clients have an issue with this, for our clients get the service they have to pay and budget for. It is only in the arena of the Coded loans that I see major changes taking place, in terms of commissions/brokerage fees, and where the majors are trying force the brokers out of this market and seize back control of this area. I''d rather deal with non-coded loans where the clients you are dealing with are business minded and place a value on your services, than coded loan customers who stuff you around for the sake of $5.00.
  • Jim Santo | 28 Apr 2010, 11:27 AM Agree 0
    At last sanity prevails. Commissions shoudl be banned and fee for service introduced. Bring it on I say.
  • Broker | 28 Apr 2010, 12:50 PM Agree 0
    Bob, most of the brokers I know do provide exceptional after sales service. This will be via Newsletters, Blogs, Personal Phone Calls every couple of months. I cannot tell you the amount of Weddings, Engagements, Baby Showers and the like that I have been invited to over the years due to the service I do provide. I have an aweful lot of clients whom have now become friends over these years so do not assume.
  • Pardon Me Broker | 28 Apr 2010, 01:03 PM Agree 0
    I cannot believe in some of the comments from Jim,Bob & Co .

    If our services is costing the lenders as opposed to the customer, and if we charge fee for service will the lenders reduce their application fee and or interest rate when they deal with a broker who they will not be paying , absolutley not.

    Please people can we have some common sense in this, if we charge fee for service it will simply cost the clients more, we will have no competative advantedge, right now we offer a real ssevice to client who DO NOT want to have the ordeal of going into the bank and receiver no comparsions , no alternatives and no service .

    Please if you cannot grasp this you should not be in our industry leave now and go and do a financial planning diploma and become involved in that industry.

    There is a fundemental difference between being a broker and an adviser .
  • Ridha fkih | 28 Apr 2010, 01:34 PM Agree 0
    Never but if it happen so be it. We charge the client directely.
  • Mick McClure - Buyer''s Choice Home Loans | 28 Apr 2010, 01:55 PM Agree 0
    The phasing out of commissions for Financial Planners (Investment Products) is the direct result of too many planners over a very long period being influenced in their recommendations by fund managers and investment product manufacturers offering significantly higher commissions to entice business. While only a relatively small number of advisers have been seduced by the "big bucks" they have over a long period soiled the reputation of industry and placed doubt in the minds of all who might or should consult a professional planner for advice.

    While there is little common ground to compare Financial Planners and Mortgage Advisers, there are some lessons to be learned from their situation.

    Had their Professional Association taken a strong position and implemented policy insisting that commissions on investment products be standardised across products at a reasonable level, FP''s would almost certainly not find themselves in this dark new world, that will almost certainly result in "mum and dad" investors being less likely to seek advice and if they do, more likely to do so via their Bank. No surprise here, the big winners from this change will be the "wealth advice departments of the major Banks.

    While we are far less influenced by commissions, and loans don''t carry the performance risk that applies to investment products, the perception still exists, and will be exploited by those with an agenda to discredit our industry and stifle our growth (guess who?).

    The lesson, I believe that we Mortgage Brokers need to take on board and implement via MFAA, FBAA and all the major broker groups is clear and simple.

    To avoid these comparisons and potential attacks, we should set a standardised benchmark commission scale to apply to classes of Lending we do as brokers. These should be discussed and negotiated with the lenders by MFAA and FBAA which are now both "broker" driven bodies. Regardless of agreement with the major lenders we should set these scales as the remuneration that a professional broker should earn for their work. For example if we set these at .65% Upfront and .20% Trail for residential lending, we would see that many lenders are paying less than the Professional Association recommends and this over time would be the subject of further negotiation and/or enable a mortgage professional to charge his client a fee to recover any shortfall.

    Obviously, it would be better if all lenders paid the same, but there is currently no mood for that given their dominance post the GFC. Competition from smaller and new lenders will force the majors to rethink their position on most things in time. My argument here is that we should not wait for Lenders to agree, we should set the agenda as a strong unified professional industry and take the high moral ground now, set the benchmark commission levels for mortgage professionals, set and report to members on lender service levels and all aspects of the broker channel business.

    What ASIC and the public need to understand is that brokers provide a most valuable competitive force in the mortgage marketplace. Without us, the public would undoubtedly be paying higher rates, getting little or no choices and enduring standard bank service. The commission paid by Lenders to brokers is for introducing qualified loan applicants, preparing and submitting loan applications and associated documentation. If we as a service channel disappeared tomorrow, customers would see no reduction in the cost of getting a loan and would find themselves at the mercy of the majors with no competitive advantages or professional advice. There would be "no winners" except for guess who.

    Let''s make sure that the we the professionals in Mortgage Broking, take the lead and set the standards that lenders need to aspire too and be measured against by.
  • Damien | 28 Apr 2010, 03:43 PM Agree 0
    Well said Mick, but I think hell will freeze over before the MFAA (and probably the FBAA) ever acts in proactive manner AND in the interests of the members it is supposed to represent.

    Over the past 8 years, I really struggle to recall an issue that the MFAA or FBAA have been involved in, that has resulted in any tangible benefit to the professional broker.

    I am much more accustomed to these two organisations just laying down to whatever unreasonable change that the majors want to introduce next, in order to make our profession as difficult as possible for existing brokers , and also to make it as unattractive as possible for new entrants.

    Thankfully the non banks are trying to give us some real alternatives.

  • Tony | 28 Apr 2010, 03:45 PM Agree 0
    To Mick -- here here. Please forward your comments to the MFAA, FBAA, etc. as I am sure your thoughts would be supported by most (if not all) of the truly professional brokers out there.
  • Patrick Marion | 28 Apr 2010, 07:30 PM Agree 0
    Most people in the broking industry today, including you journalists, have no idea how Mortgage Broking started in Australia. Fortunately I was there (in mortgage broking) in the late 1980''s when there was no such thing as upfronts or trailers. I can tell you that if you could demonstrate value and good service to clients then, there was no problem earning a decent living in Mortgage Broking. In fact, since the 4 majors were the last ones to embrace brokers (more out of necessisity than out of love) it was quite easy to steer clients away from them. Will it be the same this time around? Time will tell.
  • Dave | 29 Apr 2010, 11:14 AM Agree 0
    So do you think one day lenders will actually embrace us with actions instead of words? These one day scenario''s help no one.
  • Outside observer | 29 Apr 2010, 08:11 PM Agree 0
    If you have confidence in your value proposition, you wont be dictated by what product providers pay you, but what you and your client believe your worth! Understand your value, understand your COIs and from there build a long term business.
  • rlewis | 02 May 2010, 08:45 PM Agree 0
    Yes absolutely, under this government brokers commissions are under threat.

    Brokers should be aware that product groups (both retail and industry fund) have supported the reforms regarding no commissions for financial advisers, because this will reduce competition and help those product groups further consolidate control of the advice industry.

    The Industry Funds agenda is to remove intermediary advisers altogether, and even the retail product groups would happily see the back of pesky advisers who give unbiased advice. This is despite the additional economic cost to some product groups from settling and finding the business themselves.

    If not openly, then secretly these product groups will next push to ban commissions on risk insurance, and also push to end commissions on retail lending for the same reason. The industry super funds who have the ear of the government are not removed from this issue, as the industry funds own and control ME Group, another home lender who would be quite happy to see mortgage brokers disappear.
  • Hmmmmm | 03 May 2010, 05:10 PM Agree 0
    Cost of Brokers vs Cost of Front Line Staff

    The equation is simple - The benefit to financiers is to use Broker Channel - Mainly Variable Costs minimal Fixed Overheads. Margins are calculatable.

    Broker Channel = WIN / WIN / WIN
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