Australian Broker forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Brokers: Charge a fee, or look like a sales rep

Notify me of new replies via email
Australian Broker | 10 Oct 2012, 07:00 AM Agree 0
An industry analyst claims brokers must consider charging a fee for service, or risk looking like pawns for the banks
  • Matthew | 10 Oct 2012, 10:13 AM Agree 0
    You can't advetise yourself or even promote yourself as being independent as per the new ASIC laws.
  • correction | 10 Oct 2012, 10:15 AM Agree 0
    As per NCCP, you can promote yourself as independent if you don't receive commission
  • John Robbo | 10 Oct 2012, 10:18 AM Agree 0
    Max who??? Never heard of him - but he's dishing out the advice.
  • Keith Bridges | 10 Oct 2012, 10:19 AM Agree 0
    I agree the fee free model no longer is viable particularly with the added expense of compliance, and who could forget the potential for clawback within the first 24 months.
  • SanityPrevails | 10 Oct 2012, 10:23 AM Agree 0
    Such an outdated approach! The lenders, whilst they love profits, are happy to maintain the status quo of the viability of 3rd party channel. What needs to be remembered is the distrution and volume they receive from brokers. A tweek of an interest rate by just 1 basis point adds millions to their bottom line in profit. So, the greater the distribution/market share of business they receive, the better the profitability. That is the greatest single differential between our business and insurance and planning.
  • No Fee is still ok | 10 Oct 2012, 10:26 AM Agree 0
    Broker share is growing. Banks agree it is a partnership, so clawback is designed to make it a fairer arrangement. If we work together, commissions will stay. Gee, nice to think Max believes a broker is just a sales rep. Jump through our hoops Max, and then see what you think.
  • Julia Swanee | 10 Oct 2012, 10:31 AM Agree 0
    Upfront+trail Commission model has successfully been in operation for well over a decade, yet suddenly Mr.Marchito deems it 'perilous' and somehow undermining broker credibiity by making brokers look like 'sales reps'. Is the agenda here to really to have broker commissions abolished, despite the fact that the brokers are a proven effective and profitable service(43% OF THE MARKET) to both banks and their customers?
  • Steve McClure | 10 Oct 2012, 10:54 AM Agree 0
    Max has been telling us since 1999 we are misguided and doomed. If we act like a sales rep, we will look like a sales rep - but in 20 years as a broker, I have seen brokers prove day in and day out to their clients that we are a vital and significant profession. Lenders agree - mostly except for BOQ who thought they could exclude us, and will now be the first bank in 20 years to post a net loss. If what we are doing is so misguided, why have we attracted 40% of the market despite billion dollar advertising campaigns by direct lenders?

    On the other hand, if you are looking to line your pockets from successful brokers and aggregators who have grown from the very model you condemn, then you are probably Max Franchitto.
  • Derek Miles | 10 Oct 2012, 10:55 AM Agree 0
    Even if you charge a fee to remove the commissions problem, brokers are still faced with minimum volume hurdles. So how is it possible for brokers to be truly independent? Lenders control the product - brokers don't
  • Broker - 14 Years | 10 Oct 2012, 10:57 AM Agree 0
    In my experience clients are not concerned with paying "Professionals" for their services however they have great issues with paying "Sales People".
    The question for Brokers is ... Are you a Finance Professional or merely a Salesperson ???
  • PeterT | 10 Oct 2012, 10:58 AM Agree 0
    Quite a few clients have asked how much do I charge for the advice they're getting. On occassion I've even charged a fee. I know a few brokers who are also charging a fee betwen $500 & $1000 to their clients.
    The fac remains however, that the vast majority of borrowes are not willing to pay a fee large enough to cover origination costs. Try charging $3000 and you'll find almost all clients heading for the nearest branch.
    Commissions are vital to the sustainability of the industry. The only way brokers could run a business purely on fees is if we have access to wholesale rates in leu of commissions.
  • Allan | 10 Oct 2012, 10:58 AM Agree 0
    Majority of planners still take commissions on insurance yet dont charge SoA fees. How does this differ to the brokers receiving a commission from the lender.
  • Double correction | 10 Oct 2012, 11:13 AM Agree 0
    @ correction. Not receiving commissions is one aspect of independence and not the only one. Do any lenders set accreditation hurdles...hmmm, then you could not be independent, is there segregation in the broker channel, hmmmm - not independent. Independent is completely free of ANY bias. New legislation makes advetising "independent" illegal in March 2013. Get your facts right
  • Country Broker | 10 Oct 2012, 11:18 AM Agree 0
    Oh dear another analyst who is giving out advice and has no idea really , how can we be "sales Reps" for our favourite bank when we determine the clients needs , use product search tools , run comparison calculators , to be able to show we are doing what we MUST do and that is recommend to a client aloan or loans that is NOT UNSUITABLE. That is is the NCCP covered , now commercial loans are a different story , there may be only one product that suits , and it may pay no commission , I will then charge a fee then i also charge a fee if the deal is complicated and will take a lot of effort the cleint is happy to pay.on those circumstances.
    This commentator is showing he has not a lot of real knowledge about the NCCP regulations and what needs to be done by a broker to comply , yes we can charge a fee for NCCP deals but we also must reveal what else we receive all up Please can we have commentators who are given to well reasoned commentary , this is not !
  • Brokers have NCCP, not FOFA! | 10 Oct 2012, 11:20 AM Agree 0
    Why is there so much comparison drawn between credit advisors and financial planners? Is it because there have been similar payment models?
    Financial Planners have always been able to "create a need", whereas mortgage brokers (unless we push refinancing) generally have to wait until the client has the need for us. We can’t simply direct a client (nor can we legally) to buy a home, whereas planners can easily push a client into insurance, which is also where too many players hide behind the “planner” badge when they are nothing more than insurance salesmen. Is there any wonder why FOFA has come about?
    There is definite merit in a “credit advisor” charging a fee for work they do outside of securing a home loan for a client, and it is rightfully due. This is something that can also be independent of any mortgage written for the client and is an income source that could be obtained even if we were to never write a loan for a client. An example is a client of mine who has a private banker who is a personal friend of theirs (so they will always keep that relationship), but pays me for my credit advice.
    The fact that most of the new generation deal with brokers (some have NEVER set foot in a branch), we are getting to a 50% share of bank mortgage business, we can now provide an advisory service, and some banks are even increasing commissions, only solidifies the industry further. If it ain’t broke…
  • BJ | 10 Oct 2012, 11:20 AM Agree 0
    Yes,Max also has used the Dan Murphy analogy of squashing small players, maybe sometime in his lifetime he will claim prophet status, maybe not,but grand, sweeping statements converted into unexplained or tenuous logic doesnt really educate anybody. People who take the trouble to properly assess comparative analogies such as Dan Murphy/small Brokers and Planning/Broking can be surprised by the outcomes.Some of the posted comments here, from those who know, start to build objectivity.It is a key and relevant topic.
  • Peter | 10 Oct 2012, 12:06 PM Agree 0
    Mmmm - my initial reaction is that Max has an image problem with sales and sales reps. If he does, he doesn't understand selling. Nothing happens in this world without a sale. Even getting married! Having said that though, I believe that Brokers will eventually end up charging a fee for service. Why? Because Brokers need to have a profitable business. Small loan amounts just do not cover costs and as a Financial Planner as well as a broker, I tell clients my minimum charge for recommending and implementing a loan application is $x. However, Banks and lenders still pay commission to us. So, if the commission covers my costs, then I will not charge you anything. If the commission is less than my minimum charge, you will pay the difference. If you choose not to proceed with the loan AFTER it has been approved, then you will pay my minimum. Never had any disagreement yet. The only thing I haven't covered is, clawbacks. I'm still working on that as I doubt any client will want to pay me a fee for moving away from a product.
  • Peter | 10 Oct 2012, 12:17 PM Agree 0
    To "Brokers have NCCP, not FOFA! on 10 Oct 2012 11:20 AM".
    What is it with some people who comment about Financial Planners when they know little if anything about what a Planner is responsible for legally and what they actually do? Planners for your information have a "Duty of Care" under the Corporations Act which requires them to provide advice in all areas with certain limited restrictions. The client is advised of what the advice entails, what areas it covers and the risks etc of not receiving advcie in these areas. We cannot "easily push" someone into Insurance at all. What a load of B/S! You can't easily push anyone into anything if you are selling/advicing properly. As for FOFA, the forerunner of that commenced during the previous Govt's time and it impacts on Dealer Groups, Advisor Practices and the Industry as a whole. Not just to stop someone selling insurance improperly!
    Your comments have certain implications which, not only do I disagree with, but also show that you are either biased or ignorant of what really goes on. Having been a broker for 17 years and a Planner for 11, I think I should know!
  • Peter | 10 Oct 2012, 12:27 PM Agree 0
    To - "Allan on 10 Oct 2012 10:58 AM"
    The difference between taking commissions and not charging for the S of A is this. I have a set costs for providing S of A's and the price varies from one type of S of A and another. This is typical of Planners. In my opinion, the easiest S of A's to do are for Insurance only and Debt Advice. They are also the cheapest. The commissions paid on both these products are usually sufficient to offset my Fee and then some. So, having explained that to a client, why on earth would I charge them as well and risk being accused of a rip off merchant? The Fee gets charged where the commission is less than the Fee. Thsi is all quoted in writing in my Terms of Engagement and Schedule of Fees document which is completed and given to the client prior to any work commencing. They sign off on it before I start. Most planners I know do something similar. The difference is that I know what I need to receive for doing a particular piece of work and charge for it accordingly. How I receive the income for that charge varies. If you are on a commission only structure, then you probably do nto know what it costs to run the business. What your hourly rate is to remain profitable etc.
  • Glen | 10 Oct 2012, 01:31 PM Agree 0
    Free service, you know what your advise is worth NOTHING people are happy to pay for a service and advice the banks are not able to give
  • Old Broker | 10 Oct 2012, 05:08 PM Agree 0
    I think Finance or Mortgage brokers should restrict their opinion to commenting on our industry and leave the planning industry.
    I have been a broker for 16 years now and recently added a Dip FP as part of the Diploma of Finance in order to provide better service and protect myself when having asked in the fact find about insurance cover I actually do something about it. So far clients have greatly appreciated the pro active approach and I am yet to have a refusal or decline on the Risk side of things
    If we as an industry keep rattling about 'fee for service' then I have no doubt that we will get a further reduction or removal of commissions given time either by further legislation such as FOFA because the current political masters seem to believe that services such as planners should be fee based and if you give that some thought most of us would not survive on that as clients will simply not pay $1500-2000 for an average loan
    I have started charging a fee of $495 for my advice and it is stated as such in the various disclosures required under NCCP
    I would also like to ask brokers to consider the clear requirement at least in the spirit of the NCCP to provide a strong referral or to write the risk insurance themselves so that clients are protected
    This will only protect your business against asking the fact find questions, doing nothing about it and then having some widow sue you because she though something had been done to protect her family against the debt you advised her to take on
    Food for thought
    Remember fee for advice not fee for service
  • broker 2 | 10 Oct 2012, 08:05 PM Agree 0
    Amusing article really. I think more analysis needs to be done because these current findings are incorrect. Financial planners still receive commissions from product providers from insurance - just like the 80's and 90's - nothing has changed there.
    To say "Once this is not the case then they will reduce commissions or cut them off completely and rely on internal distribution channels" is ridiculous. This is a market - if one lender were to do this - the other lenders would receive more business - then what sort of profitability outcome would the "internal distribution channel only" achieve.
    Amusing article at best.
  • Max | 12 Oct 2012, 01:06 PM Agree 0
    Thank you all for your feedback, just the reactions I wantde and expected. The facts are simple, FoFA is aimed at "fiduciary" duty or "whats best for client" how can anyone assure this when commissions and related production incentives "soft dollar" commissions cast a shadow on why Bank A was chosen over Bank B. Prepare a SoA and let the client decide and charge them a fee for the SoA or financial strategy plan, it adds value, makes you look like an expert and cuts out any discussion of Bias.

    On a personal note for those who attack my knowledge at least Google my name and do the research, because I do know AFS well and for therecord was a previous joint owner of a profitable mortgage broking business.
    But by all means keep up the debate it is healthy.......
  • Positive Broker | 13 Oct 2012, 11:18 AM Agree 0
    Well, said Max. I don't know you from a bar of soap but some of the unprofessional responses to your article are not healthy for the industry. For the record, I tend to disagree with you but defend your right to comment.
Post a reply