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Clawbacks are essential, says non-major

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Julia Corderoy | 06 Nov 2015, 08:00 AM Agree 0
Reasonable clawbacks are essential for the viability of broker commissions, a non-major bank has said
  • Mark | 06 Nov 2015, 08:40 AM Agree 0
    To Steven, tell me this, would you go to work today and do a hard days work and on the 5th day of November 2017 all of a sudden have someone tell you that you have to pay back your day's wages from the 6th of November 2015? I don't think so! Clawbacks are wrong make no mistake.
  • SouthBrisBroker | 06 Nov 2015, 08:41 AM Agree 0
    What does the FBAA grandstand over an issue that only impacts 1% of the loans that I write? Surely they have better things to do or does Peter need more attention. Writing emails sounds like a school protest not a professional body. What rubbish.
  • R Watson | 06 Nov 2015, 08:48 AM Agree 0
    OF course the banks think it is fair to share the costs - but that is so they can maintain their world class profitability.

    What part of 'fair'requires that a broker do the work to deliver a customer to a bank and then be paid nothing if the bank fails to keep the customer? Where in this equation is the bank taking any risk at all? Where does the bank take responsibility for anything?

    Peter White is correct when he highlights the problem of clawbacks. The clawbackof payments does NOTHING to maintain the viability of the commission system. It is only about banks keeping their margin and pushing risk onto brokers.
  • Macarthur Broker | 06 Nov 2015, 08:59 AM Agree 0
    Sorry Steve, you are way off the mark on this one. The banks were forced to abolish DEFs because they were seen as unconscionable. So what happened? They pushed up clawbacks. When this happened the banks should have just worn the cost like most other businesses would have to.

    A bit like the way they are increasing rates at the moment, just because they can.

    Steve, is this is indicative of the level of support you have for the broker channel I and I am sure other brokers as well will seriously consider the level of support for Suncorp. You call us "business partners" but I sure don't treat any of my business partners that way.

    The service provided to brokers is questionable anyway.

    The market is screaming out for lenders who will treat all brokers with respect (not just the Aussies of this world).
  • GC | 06 Nov 2015, 09:05 AM Agree 0
    Not surprised to read this sort of garbage coming from a lender. It's definitely NOT reasonable to expect the broker to share the cost when a customer repays their loan shortly after the loan settles. We only get paid for the successful "introduction" to the lender and that is all. The trail payment is paid because the client stays with the lender.

    The lender doesn't share the interest payments (banks income) with us so why should we share the costs? Brokers and lenders are supposed to be in a "partnership" - banks words, not mine. This partnership is incredibly one-sided. In the real business community this type of partnership would not survive so why are brokers compelled / forced to accept it.

    To also link clawbacks to commissions is absolutely pathetic and bordering on a threat - meaning if we don't accept clawbacks as normal our commissions could be cut.

    This issue needs to be looked at from a legal perspective because I seriously doubt clawbacks are legal. It would be interesting to see it challenged through the High Court. They are certainly not acceptable or fair.
  • Phil in Finance | 06 Nov 2015, 09:13 AM Agree 0
    There is obviously a high cost in setting up a new loan for any lender, as well as paying the broker.

    It is the client who may not be forthcoming about their short term intentions that creates the issue for all concerned.

    I say bring back deferred establishment fees!

    Let the client who leaves a bank early, wear the cost. The broker or the lender should not be penalised (and branch staff churning clients from brokers could slow as well).
  • Regional Broker | 06 Nov 2015, 09:16 AM Agree 0
    Steve has an argument if the broker is gouging and refinancing a loan in the first two years or the client "wanders and refinances".

    I think to have a "fair approach" is if there is a death, divorce or a genuine reason for a sale of the security, then there should be no claw back.

    IF the bank internally refinance there should be NO CLAW BACK (CBA and ANZ take note).

    The Peter White comments are inflammatory but at least it has sparked a debate.
  • Buddo | 06 Nov 2015, 09:19 AM Agree 0
    I don't think the word "share" is correct, especially in the case where we can lose 100% of the income received, yet the lender can still make money.

    My suggestion would be, unless the original broker churns the loan, if a loan being refinanced is within the clawback period, the entity writing the new loan should be charged the clawback. If that's a broker, the outgoing lender should make note of the amount to the new lender when providing the payout figure, separately. The new lender can then deduct that clawback they are being charged from the brokers commission, or, if it's not a broker (as is often the case) the incoming lender can wear the expense, or try to pass it onto the borrower.

    Therefore they'd need to justify the transaction even more, & possibly we'd see a reduction in clawback cases.

    To clawback commission from a broker, up to two years later, for work that has been done properly & conscientiously, is wrong. Especially where someone refinances the client for little benefit. If the new broker or lender believes they are doing such a good thing for the client by refinancing them, they should also need to be aware that it will impact their bottom line too. Just maybe, bank staff might be discouraged from stealing broker loans as well if there's a sting in the tail for them.
  • Ray | 06 Nov 2015, 09:22 AM Agree 0
    I can't see what the issue is? Build in a claw back clause in your quote and charge the person responsible - the client! I have been doing it for years without issue.
  • Clarke Kent | 06 Nov 2015, 09:28 AM Agree 0
    Steven you are completely out of touch with Broker sediment on this issue. Perhaps we reduce your fat salary by 50% and see how you survive!
  • sth west broker | 06 Nov 2015, 09:29 AM Agree 0
    What are the current statistics of what % of the banks business is repaid within the first 12-18mths? A breakdown would be interesting. If a client is refinancing within the first 18 months you would be questioning this as a broker anyway. I am strongly against clawbacks if the homes are sold, as a broker has no control over the sale of a property but can control loosing a client to a refinance. Do Staff get their bonuses taken back if part of their book is lost within the first 18 months? No.
  • Inner West Broker | 06 Nov 2015, 09:29 AM Agree 0
    Can't the clawback be apportioned on a monthly basis instead of the clunky/chunky system at present?
  • John Sanders | 06 Nov 2015, 09:34 AM Agree 0
    I have been a member of both the FBAA and MFAA and quite frankly find them both to be toothless tigers.

    They rant and rave and try to justify the ridiculous membership fees we pay year after year but the banks don't fear them at all.

    Banks just do what they want treat brokers how they want, cut commissions, give dreadful service, steal clients and there are zero consequences.

    I would love to know how much money both these bodies make each year through broker memberships.

    I feel I get nothing back apart from an FBAA logo on my business cards.
  • Paul B | 06 Nov 2015, 09:35 AM Agree 0
    Steven from Suncorp refers to us "business partners". He is dreaming! He has no sense of the SME business space that we operate in; and the operational and compliance costs, not to mention time we incur the time to procure and lodge deals.

    They don't offer a stepped trial for the longer the client stays on the books, so why he trying to justify the cost to the bank when a client discharges within first 18 months. #norespect
  • SEQ BROKER | 06 Nov 2015, 09:37 AM Agree 0
    Like I have long said, clawbacks and the case of a churn are fair and required. Clawbacks because someone decides that a television advertisement advertising a tiny rate cut has sold them, or if your customer has died (yep happened) or if your customer decides to sell is not reasonable.

    I ask my customers if they are intending to keep the loan for 18 months. If no, I push them to a bank.
  • Aaron | 06 Nov 2015, 09:41 AM Agree 0
    If it's only 1% of your business, then it's only 1% of their business... The BIG 4 profit margins are greater than $1,000 per person (man, woman and child) in Australia. They are far better placed to absorb such a marginal cost than small businesses.

    Far better policy to track brokers with a disproportionate rate of early discharge and either remove their accreditation or place them on "trail only" commission structure.
  • John Whitten | 06 Nov 2015, 09:48 AM Agree 0
    The clawback I dislike is the clawback when the client has left the bank because of the bad service they have received from the bank. What needs to be done is work out why the client is leaving the bank. If it is because the broker is refinancing to another bank, then I feel clawback is justified provided it is not because the client has come back to the broker and said that they are unhappy with the service they are getting from the bank.

    There is no justification for clawback when the clawback just turns up and we contact the client and they say they left because the service from the bank was terrible, and they did not come back to us because the bad service they received from the bank was a reflection on us.

    It should not be one size fits all. We should look at who is at fault for the client leaving the bank. A lot of the time it is the bank that is at fault.
  • Bottom Line | 06 Nov 2015, 09:49 AM Agree 0
    Part of the Bank propaganda machine, to try & quickly hose down this issue & make it go away.

    Eight years ago the trail commissions were 0.25%, now they are 0.15% - but clawbacks remain & have been extended in some cases. That reduction/savings alone, should have enabled the banks to get rid of clawbacks...but no.

    Lodging loans online was going to save the lender time & money, & hence improve commissions according to bank officials... It didn't.

    It's simply a partnership, with only one partner having any say. Then they said commissions didn't need to go up, because the average loan was rising; but then when the loan average fell for years after the GFC, the reverse didn't apply...
  • Steve McClure | 06 Nov 2015, 10:23 AM Agree 0
    I AGREE (with a sidenote) that clawbacks are a commercial reality. HOWEVER, the upfront cost (aside from comms) is the lender's cost and therefore should be charged to the borrower on settlement. But, no, the lenders make it free to apply, then slug the broker in the case of early repayment - or recoup the costs if the loan lasts 2 years or more.

    Does anyone else see that if lenders charge borrowers (user pay), clients are less likely to refinance and the costs are paid at the time incurred? And our valuations system would work better by not screwing them down on cost. If all lenders charged upfront fees, no one loses, apart from the client that chose to terminate & switch a contract.
  • GP | 06 Nov 2015, 10:29 AM Agree 0
    I love this -

    “Lenders also operate on this principle and incur their own costs to process the loan, as well as other third party costs such as valuations and settlement costs. It is reasonable to expect that brokers and lenders share the cost when a customer repays their loan shortly after settlement.”

    This is bank approach since GFC - we share cost with you BUT we will keep all the profit we make.

    OK MR Banker how about this - keep clawbacks but share part of your profit with us only for 3rd party introduce. I think that is far form your point of view.
  • Tom | 06 Nov 2015, 11:22 AM Agree 0
    The legislation has a provision for the banks to recoup costs incurred in establishing the loan. Commissions are one of those costs listed in the legislation as acceptable to charge a refinancing client.

    Based on that there isn't any justifiable grounds to penalise the broker. The legislation provides provision for user pays and not have the broker subsidise the customer or the bank for the costs incurred. Although banks are gutless pricks who will always exploit a soft target.

    I think their is something in the corporations act on that that topic also.
  • Jerry Gibb | 06 Nov 2015, 11:30 AM Agree 0
    What a load of rubbish. What sales person has income clawed back for something outside their control (only brokers). This is a cost for you doing business that is why you have just raised your rates as the Government has just made industry changes. If it such a big impost on your business then just raise the rate on every consumer, you banks are good at that when it cost more for you to conduct your business. This is just another cost at the end of the day when you guys make billions of $. Don't come with this rubbish to the average broker.
  • Peter White CEO FBAA | 06 Nov 2015, 11:37 AM Agree 0
    Isn't it funny, the FBAA/I have spoken out against clawbacks for many years and more-so since the previous government banned Exit Fees which took clawback parameters to a new level.

    And now we are able to take a stronger stance on this especially with the impact of lending growth and banks continuing profits by in-part using distribution through our great broking sector.

    So why would any 'broker' criticise 'fair play' on clawbacks ?

    Seriously - what you believe working for free is appropriate, the banks don't - and you're not a charity!

    In these blogs there are people against the FBAA's stance and actions, anyone's right of course, but unless you are a bank or have a hidden agenda, one would have to think that was very strange.

    One person here claims to be a FBAA member AND ISN'T @John Sanders so who are you besides misleading? Another hides behind an anonymous name @SouthBrisBroker as they obviously have something more to hide with their negative comments and I'm sure all those who have flooded me with emails giving their support would see your comments as very disrespectful and way out of touch with reality - but then you hide you identity so...

    The FBAA is honoured to publicly stand up and be counted and take action, as this is far from over.

  • Broker | 06 Nov 2015, 11:43 AM Agree 0
    Very ordinary commentary from Suncorp, but they are absolute specialists at alienating brokers!
  • Thinker | 06 Nov 2015, 11:51 AM Agree 0
    All it takes is for one lender to abolish clawbacks, leave upfronts alone and to do this without increasing interest rates.

    Watch what happens to their third party volumes then. And someone like Suncorp, BOQ, MAQ would be perfectly placed to do it. Pity SCM holds this viewpoint.

    FBAA/MFAA taking this to court is a waste of time. If they were successful the big 4 would simply reduce upfronts to cover the "cost."
  • Russell | 06 Nov 2015, 12:33 PM Agree 0
    Obviously with Steve's attitude it is fine for brokers to get them business without getting paid. I have given Suncorp quite a bit of my business with his thoughtless answer I will be re-considering where I refer my future business to. Steve I think you should have your wages taken off you.
  • Papery | 06 Nov 2015, 12:35 PM Agree 0
    Hey Mr Lender... Define 'reasonable'... Last I heard the credit team had around 14 mins to process a loan that we compile & submit using online platforms. Docs are either auto generated or contracted out to a third party who also perform to prescribed short SLAs.

    As a broker I can literally spend days on a single deal... From interviewing the client (sometimes more than once), pumping out docs to comply with NCCP, verifying fact finds & supp docs, phone calls, emails, texting, loading & lodging the deal, completing GOOD loan submission notes attachments, chasing valuers & liasing with Solicitors etc, and chasing Lenders because the tracking notes left on most of your online broker sites are abysmal.
    There is very little scope for escalations these days & BDMs (mostly from the majors) are nothing more than talking heads.

    So please tell me, when you clawback 100% or even 50% of my commission, how much of the cost have you really shared?

    Current cash rate is 2%, thats $2k per $100k of debt pa, so if you charge say 5% IR you are making $3k pa Gross income pa per $100k of debt. The average loan is around$ 375k....God knows what it is in Syd & Melb these days!
    and you've only paid 0.22% trail out of that, reduced by any offset/redraw balance.

    I know this is very simplified & there are many more factors to apply, but with the Banks making $BILLIONS in profits these days (BTW I do support a strong banking sector), the MFAA & FBAA do need to make as much noise as possible to challenge these clawbacks at every level.

    I like Buddo's suggestion, too.
  • Robert Seton | 06 Nov 2015, 12:57 PM Agree 0
    Ah again the emotion has taken over. The key word here is "reasonable" and if the lender is truly intent on a "business relationship" then I advocate they look at the following reasonableness (is that even a word, did I use it correctly?).

    Notify the broker that the client has asked for discharge. Would give us an opportunity to help save the client. Beneficial for all in the relationship, it also flags that the clawback clause is in play and then it won't be such a surprise/disappointment for the broker or the client if there is a clawback clause in their agreement. I believe this would not be that difficult to implement.

    If the broker deems that the clawback is unreasonable then as a business partner they could take this up with the lender involved putting their case to them (in a non emotional way) and the clawback could be discussed. I have done this on several occasions and have achieved outcomes that everyone was happy with.

    There needs to be some follow through for instance the broker couldn't just say "The client left because of your service" you would need to provide proof from the client as well as details around the poor service proposition. This would give lenders valuable information as an "exit interview" from a 3rd party. You pay marketers for this information why not use your business partners who already have a relationship with your clients.

    Reasonable clawbacks could work and would provide lenders with better insights and a closer working relationship with their partners.

    Now the question is who wants to lead the industry and come up with something beneficial for ALL parties.

    Steve I would ask you to consider the above and let us know your thoughts.
  • John Sanders | 06 Nov 2015, 01:00 PM Agree 0
    @ Peter White... More hype, ranting, more trying to justify your wage and the membership fees we get charged.

    12 months from now will anything have changed? I will put my my house on the answer being no.
  • Steve McClure | 06 Nov 2015, 04:35 PM Agree 0
    Some of the criticisms here aren't conducive to arriving at a solution. Particularly unfair on Peter White, and dare I say, on Steven Degetto too.

    Peter was very vocal & diligent on trying to stop the banning of exit fees - a big factor in clawbacks. The fact that no lender of any ilk has determined an economically competitive advantage in waiving them suggest it really is a difficult issue. And remember, all our aggregators have signed agreements in which they exist. Sure, its a real problem, but every industry has unique issues. Of course I loathe clawbacks - I've made suggestions, and I'd like to see more. Many prudent brokers take control by building in contractual provisions with clients. I have done it - or worn it, not shoot the messenger.
  • Simon McGrath | 07 Nov 2015, 08:51 AM Agree 0
    There is a simple solution. Simply make the customer liable for payment of any clawbacks that you suffer as a broker in a side agreement with the client at inception of the loan. Any clawback is an economic cost to your business, repayment damages your business, brokers pussy foot around on this, toughen up!
  • Rodney Who | 07 Nov 2015, 12:33 PM Agree 0
    Given Suncorpse has just let 30% of its staff go, maybe they should be courting business from brokers not alienating them.

    If the property is sold that can hardly be the brokers fault and a chargeback is not justified. As was pointed out earlier the bank's sales staff do not lose commissions/bonuses in the event if a debt payout.

    I'd be fairly confident that Mr Suncorpse has a target for new business with no attention paid to run off. Perhaps if that changed lenders would pay more attention to retention in their own right
  • Come on | 08 Nov 2015, 08:49 PM Agree 0
    FBAA is spot on. Mr Sanders and SouthBrisBroker, the clawback has been a thorn and if you are a broker in fact and have loan book it will be a bigger thorn as the 4 majors pricing is now in major refinance risk.

    Ask your accountant how s/he would feel refunding the fee you paid last year because you switched accountants this year.
  • Broke Broker | 09 Nov 2015, 01:05 AM Agree 0
    What other industry pays you and then takes your income back if a client decides to move to another provider, or due to change of their circumstance or other provider incentive?

    Bank's don't take back income from their staff. We are a cheaper distribution channel and we come with less 'noise' so it's easy to target the vulnerable broker. Please don't speak rubbish about sharing 'costs'.

    A 'fairer' system if at all, is to recoup 50%-70% within 12 months and that's it! Eighteen months and up to 100% is a pure money grab.

    What about clawback for 'partial' discharge that some funds managers charge - absolute rip-off. Where is MFAA to support FBAA? There needs coordinated + unilateral support to stop the carnage and unfair practice.
  • SEQ BROKER | 09 Nov 2015, 08:51 AM Agree 0
    @Macarthue Broker, just a quick question. DEF's were considered unconscionable. I dont think so. We lived quite happily with them for years. It was Labor's incredible failure named Wayne Swan who wanted borrowers to "vote with their feet" and then removed the DEF's so that they could do so. The removal of DEF's was a mechanical lever applied with good intention but in application has failed (typical of a Swan policy!) not an unconscionable fee.

    Yet another ill-conceived socialist government failure! Any business person would at least ask the question, what will happen if we do remove DEF's? The answer, most of us have credit quotes reflecting the claw back clause back onto the borrower - again who are the only winners -> the banks. Gosh Swanny loved them I wonder what his stake was?
  • John Sanders | 11 Nov 2015, 01:13 PM Agree 0
    @ Come On - I am not disagreeing with what they (the FBAA) is saying.

    I agree clawbacks are a pain. I am saying the FBAA and MFAA are toothless tigers the banks don't listen to nor care about. All the ranting and raving in the world will not stop them having clawback conditions.

    I will put my own house on the fact in 12mths from now nothing would have changed.

    Watch this space!
  • Maria Rigoni | 12 Nov 2015, 11:59 AM Agree 0
    Here is the old broken record having her say...
    As the system is, claw-back of broker commission is here to stay. Why?

    I suggest neither the FBAA nor the MFAA would test the practice in the courts, and most brokers do not have the funds to do so. Even if they did most lawyer firms have a line that they have done business with the major banks so to take claw-back on would be a conflict of interest for them.

    Neither the MFAA nor FBAA made a submission to the discussion on changes to small business unfair contract law - this would have been a good place to demonstrate support of brokers on this topic.

    There is no doubt claw-back is unconscionable as it goes against the grain of good conscience.

    Whether claw-back happens once or 100 times is irrelevant. Claw-back is unethical and immoral as it coerces hard working honest people to work for little or no remuneration. Most brokers have no idea which loans will be repaid within the up to 24 month claw-back period. And it is not the broker's decision on whether a loan is taken out or repaid.

    The real issue is that brokers have no way of defending themselves or negotiating fair terms. It is an unconditional term to accept claw-back, and at any whim decreases in remuneration or leave the industry.
    The remuneration contract for the introduction of new business is between the aggregator and the credit provider.
    Upfront and trail are both paid for the introduction of business. Not for completing the outsourced loan writing tasks.

    Over the last 14 years more and more work and higher expectations of professionalism have been required yet remuneration has decreased.

    It is the aggregator who sets the broker up for this unfair payment regime. It is fact today most aggregators are either fully or partially owned by the same credit providers who initiate the claw-back clause in the remuneration contracts.

    Surely a court would recognize the unfair advantage brokers are being subjected to? Without a change to our laws to protect subcontractors nothing will change.

    I've been involved in the past taking the issue to ACCC & ASIC who just reinforce on the surface the credit providers are operating within the law as the broker knows the terms prior to undertaking the work. The test in whether they are operating within the law has to occur in the law courts.
  • PeterS | 13 Nov 2015, 03:11 PM Agree 0
    I am a broker who does not have "a clawback" type provision applied to clients and, I do not object to brokers using one. However, in my view they can reflect badly on our industry e.g. Aggregator AND Credit Rep claiming an amount equal to 100% upfront as a clawback, if the loan ceases or even reduces in value within 27 months from unconditional approval.

    Consequently, as it only relates to the upfront value even if the loan makes 26 months the aggregator/credit rep. make double money.

    I think this smells worse than a rubbish dump - what do you think?
  • Steve McClure | 13 Nov 2015, 04:23 PM Agree 0
    I'm proud to be a member of the MFAA and also represent broker issues as part of my voluntary role on the MFAA'a state forum. Whilst I don't speak for the MFAA, I'm sure they and all other associations would love for clawbacks to be banned.

    The fact that they remain contractually (and therefore mutually) agreed between lender and aggregator, suggests its a very difficult proposition to remove. @Maria Rigoni, the AIPB association you headed wasn't able to remove them either. I'm guessing the legal advice is that they are watertight as they stand.

    The only way to gain ground on the issue is to improve the commerciality of the reasons to relax them. I'd be happy if brokers bombarded me with suggestions (not just gripes or hard luck stories - I have enough of my own :)), as to how we could overcome the issue. I'll put it on our LinkedIn Australian Mortgage Portal too. There are some suggestions here that I'll cut & paste too - then take them to the MFAA & others.

    Leaving good ideas on a anonymous blog is pointless, so look me up and pummel away. I hate clawbacks too.

    P.S. Actually, there are many broker loans without clawbacks - anyone else know where they are?
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