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

Don't bite the hand that feeds you, says lawyer

Notify me of new replies via email
Australian Broker | 31 Mar 2014, 08:30 AM Agree 0
Clawbacks are not disappearing and brokers should be careful about ‘aggregator-bashing’, said a prominent financial services lawyer
  • SIDBROKER | 31 Mar 2014, 08:59 AM Agree 0
    Swan, Rudd and company were the culprits here. Vandalism legislation to say the least. Pity swan kept his seat in QLD.
  • Level Head | 31 Mar 2014, 09:07 AM Agree 0
    Finally a voice of reason. No one likes claw backs but let's keep it in perspective please. Love the idea of bringing back exit fees provided we can return to claw back periods of 12 months maximum.
  • Jack | 31 Mar 2014, 09:27 AM Agree 0
    Good to see Jon Denovan defend the banks. Jon do you forget the banks did have exit fees and still charged claw backs?
  • Andrew Walmsley | 31 Mar 2014, 09:29 AM Agree 0
    We have always had clawbacks.we never benefited from a share of exit is up to the broker to insert a clause in his contract allowing a recovery of commission if client refinances or exits the loan.
  • CHANGE Broker | 31 Mar 2014, 09:33 AM Agree 0
    What I took from the discussion was that Mortgage Brokers have no say in relationships between Lenders/Aggregators /and Industry Bodies. Most comments were about the length of claw backs, 18 months to two years, and many were of the opinion that 12 months is enough. The frustration is the lack of a voice in the process, with Industry Bodies and Aggregator's lacking the ability and motivation to argue a case for fairer Mortgage Broker conditions. Agreed the Politicians got it wrong with exit fees, but for now, again, nothing has changed.
  • Oscar Hvala | 31 Mar 2014, 09:35 AM Agree 0
    I always remembered claw back even when exit fees were place. Remember, if you don't want clawbacks, then the recourse for lenders will probably be to reduce commissions. And please don't add to the argument about fees for service.
  • Clarke Kent | 31 Mar 2014, 09:36 AM Agree 0
    Very easy for someone sitting in a chair charging $450 per hour saying clawbacks are fair. I can't imagine him refunding his professional fees for advice given in event client losses his case based on his firms recommendations. Double standards if you ask me.
  • Sticky Tape | 31 Mar 2014, 09:37 AM Agree 0
    What a load of Poppycock.

    Clawbacks were NOT introduced because exit fees were banned.

    Clawbacks have been a round since I starting being a broker 14 years ago.

    So, anyone who says any different is telling Big Fibs.

    And Denovan should know better that his comment about clawbacks only being there because of banned exit fees, he has been around long enough to know better.

    Banks are the ones Biting ALL hands that feed them (brokers & clients). They can't help themselves but to do that.

    I still have copies of previous commission tables, dating back well before GFC & well before banned exit fees.

    Guess what?

    Full of clawbacks.

    People are just pulling the wool over our eyes and using GFC & banned exit fees as a poor excuse to try to make us feel better.

    Aggregators do NOT fight enough for brokers - they are owned by banks, so why should they.

    Really makes you feel good about being in this industry - NOT!
  • Aarong | 31 Mar 2014, 10:06 AM Agree 0
    Firstly, I reject the idea that clawbacks are fair or inevitable. They definitely have an effect on decision making, so their very existence prohibit unbiased advice. I can do the math just fine. If interest rates need to go up by .2% for a fair economy that is what needs to happen. Banks price in costs all the time. Why is anyone saying this one time it is impossible? It doesn't help when brokers on this very thread are agreeing with a lawyer who says clawbacks have to happen. He is right in one thing and that is scrapping the ridiculously jingoistic policy of forbidding exit fees would help as well. This idea that clawbacks are okay in the brokering industry is almost always supported by lawyers and none of them have clawbacks. Does this not seem strange to anyone else? In fact, what other industry does have clawbacks? Name me three, not one, but three. The exit fee ban was just one more regulation happy rule brought in by the last government, who was incapable of predicting unintended consequences. Of course, you almost can't blame them when brokers themselves were trumpeting the introduction of new regulations. Brokers now are acknowledging the inevitablility of clawbacks as though it was a fete d'Compli. It's like watching lambs fight to be the first ones to be slaughtered all the while telling each other its okay and there's nothing that can be done about it. Just to all the brokers who still don't get it.... Regulation is the enemy. It doesn't help us. It doesn't weed out shonky brokers. It doesn't give the public any greater comfort (they aren't aware of any of this). It does add ridiculous amounts of paperwork to our processes and commits us to liabilities that most of us haven't had training to engage in. By the way, more training requirements (regulations in other words) isn't the answer! Any effort to impose more regulation on top of the existing regulation will hurt us more. Get rid of external regulation, don't add more regulation to fix the the problems the first round of regulation caused. The banking sector in Australia worked just fine when we self-regulated. I always ask the same question of the changes the last government put in to change the worlds best banking system.... What was the problem they thought they were solving?
  • Marty | 31 Mar 2014, 10:33 AM Agree 0
    Clawbacks have always been in place. They real issue now is the way the market works with no exit fees for borrowers and undercutting for new business. Its little wonder the churn rate is going up. Is it??

    Examples...Ubank (seriously nab what are you thinking with this self cannibalising strategy). firstmac/ ??? How can they offer a variable loan at 4.50% when best the banks can do is about 4.70%..doesn't make sense when the banks are meant to have better funding power. Regardless why should a borrower stay on 5.2 when they can get 4.50 with no nasty exit fees. All for competition but not a race to the bottom.
  • Tim H | 31 Mar 2014, 10:34 AM Agree 0
    Oh Mr Denovan you are a piece of work.
    Let me say upfront I agree the argument about clawbacks needs to cease as the brokers will surely lose out if changes happen.
    However you know very well that clawbacks have been around for years, you also know that banks did deal with all brokers direct before someone came up with the idea to aggregate/ franchise mortgage businesses, you also know that clawbacks existed long before exit fees were banned and you surely cannot be bloody fair dinkum when you say brokers would not exist if aggregators did not exist.
    Don't take us for fools Mr Denovan !!!!
  • Old Broker | 31 Mar 2014, 10:45 AM Agree 0
    The best response to clawbacks is to have a clause in your Fact Find and also reflected in your Credit Proposal that if a clawback should occur clients will be charged, and to make absolutely sure you explain the clauses to your clients at the time of signing. I have this and do not get any adverse reaction from clients when it is explained.

    In the matter of lenders, never, never trust them. They have proved time and time again they are only interested in the holy dollar. Don't expect them to not continue clawbacks because they're here to stay. Just look at how lenders were dragged kicking and screaming to the altar of Swann's early loan repayment fee changes. That was the time to have clawbacks rolled, but now the chance is lost.

    Thankfully at least one agregator has got it right with not passing on clawbacks. We should support them. We can do our bit by staying in close touch with our clients so we know what they are thinking, their plans and dreams, their successes and failures. This above all else will do most to avert a clawback and grow our businesses. So let's all stop bleating and start doing something positive for ourselvs and our clients and that way clawbacks will no longer be an issue!
  • RealisticBroker | 31 Mar 2014, 10:57 AM Agree 0
    "Borrowers switching banks every two years each time they find a better deal is not fair, he said."
    NOT FAIR??? for who? The mums and dads trying to save money on their home loans or the corporations making billions?? go figure!
  • VIC Broker | 31 Mar 2014, 11:19 AM Agree 0
    Let's say I'd agree - BUT ONLY for when the clients move the banks, "clawback" to apply for "documentation fees, solicitor fees etc". AND then any "establishment fee/application fee etc" to be half shared&refunded to brokers to cover our loss. How on earth they/everyone just charge all kind of fees while brokers do not and then when the clients go away brokers are only the ones left with empty handed? Ironic enough, clients generated by brokers not the banks or their solicitors. Remember WE send them to you and thus that's why we are called "introducers" - so please, really, "Don't bite the hand that feeds you, banks (and solicitors)!"
  • Bruce Lee | 31 Mar 2014, 11:26 AM Agree 0
    I have been a broker for over 16 years and clawbacks were in existence since about 2002 when I joined an aggregator. Most of us brokers are honest however I am aware of few brokers refinancing their clients every 18 to 24 months just to get new upfronts. Lets be honest here, we are in it for the love of the profession and the money because if there was no money in it than there would not be 11,000 brokers out there, the banks/lenders are also in it for the money, some would say they already make too much money but that is another argument. If the clients from those brokers are refinancing within 12 to 18 months either directly to a bank or to another broker then ask yourself the question "WHY?" why did these client did not come back to the initial broker? In my time as a broker that is 16 years, I can count within 2 hands the number of clawbacks I have received, the majority of them circumstances that forced them to sell, the odd few was clients refinancing to bank I placed the loan with in the first instance meaning "Channel Conflict" and again most of those I complained to the relevant BDM and the clawback was reversed.
    I agree that the last government act re exit fees was a knee jerk reaction however I am sure everyone of you remember the exit fees from the likes of lender Bluestone where after 3 years to some 5 years the fees were huge!! put together there were a significant number of borrowers with those non conforming lenders that cost clients. I am unsure where Mr Donovan got his information re exit fees and clawbacks and their coloration however I do urge he get the facts before opening his mouth, he has not only done damage to himself but huge damage to the name of his firm!!
  • Broker | 31 Mar 2014, 11:34 AM Agree 0
    Further indisputable evidence that Brokers are basically gagged and this industry lacks any form of leadership – and there seems to be no answer to this situation as Aggregators , MFAA and FBAA continue to feed themselves from our income and do very little , if anything, to warrant their position within the industry
  • Peter White - CEO FBAA | 31 Mar 2014, 12:20 PM Agree 0
    The FBAA has taken up this cause as originally commented when this discussion first started the other week, and I will keep that promise !

    But Jon, FYI according to ASIC there are approx 34,000 ACL and ACR holders in Australia and approx 28,000+ of those are ACRs (brokers). So the broker market is far larger than you understand and certainly a long way from the 11,000 you comment on.
  • Stedman | 31 Mar 2014, 12:25 PM Agree 0
    We live in a free country and are allowed to express our own opinion. However I believe your wrong John.
    AS we don't have any organisation that represents us as Brokers, that is prepared to stand up, then its up to the individual to do what they think is right. It also helps if you have sufficient financial resources to assist in this course.
    So I have just recently refused to accept a particular Banks accreditation, It has a 2 year clawback, No trail paid for 12 months, a volume requirement, and a payment required if my previous accreditation had lapsed. (and it did as I spent 2 years out of the business)
    Frankly, there is no Bank out there that has a product , that offers more than what is available through others, so I have no concerns in recommending alternative sources to my clients.
    As Brokers we expend our costs at the beginning of a transaction, this replaces the Banks cost of not employing additional staff to complete their marketing, Its from this area that their costs are saved.
    To say its a cost that has to be recovered over time, is actually their cost of doing business. not mine.
  • Salvatore | 31 Mar 2014, 01:15 PM Agree 0
    I have to agree with Jon that the user should pay.
    Exit fees within reason are necessary and legitimate way of cost recovery. If your argument is that lenders make too much money and therefor mortgage loans should be subsidised then this argument is flawed. The notion that one area of business should subsidise another is fundamentally wrong. Getting a mortgage is not a right it is and always has been a privilege. With regards to clawbacks the argument was churn, that a broker would refinance the customer once the cheap or honeymoon term was finished was discouraged by applying a clawback. In other words the clawback mechanism should not be used to recover costs from brokers because of customer initiated refinance's.
  • RU Serious | 31 Mar 2014, 01:26 PM Agree 0
    Firstly there are more than 11,000 brokers, we existed before agregators, we had clawbacks with exit fees, we had Chanel Conflict, but to be honest given my recent experience with Gadens through a 2nd tier lender, right about now how about you go and fix up your own nest rather than beating ones chest for the banks via the industry newsletter
  • Regional broker | 31 Mar 2014, 01:34 PM Agree 0
    One incorrect assumption , even when they had exot fees the banks we're still charging claw backs.
  • oldBroker | 02 Apr 2014, 11:00 AM Agree 0
    I thought Mr Denovan's industry knowledge would be stronger but he is very out-of-touch with the broker industry. Mr Denovan's overall advise is to be good little people and don't rock the boat.

    No one is bashing anyone. We are only interested in working within an efficient and fair system, and these conversations are an attempt for all us brokers to step-back and see/talk about the big picture.

    "Exit fees"
    The elimination of exit fees is a done-deal, and are a completely separate issue since, as many brokers have explained, exit fees co-existed with clawbacks.

    "Borrowers switching banks every two years each time they find a better deal is not fair"
    Huh? If there is no forced churn, then this is the market system in operation. If lenders do not remain competitive, then the consumer has every right to refinance as often as appropriate. Business 101.

    "But Denovan does not believe this will work because very few banks want to deal directly with brokers."
    It doesn't matter what banks 'want'. In fact, brokers are a little tired of what banks want. Banks will only act upon changes in regulations. My point is that the introduction of the ACL requires (repeat: requires) that the credit suppliers change their systems to recognise the ACL as the 'owner' of the loan rather than an entity with absolutely no skin in the game (if broker is own ACL). The owner of the loan must be the entity that is licensed and on-the-hook for compliancy.

    "do you think the four majors are going to look after 11,000 people? They would find that all too hard"
    Again, this comment is one of ignorance. The majors will have 11,000 broker IDs on file, they have to handle queries and support for all 11,000 brokers, they need to individually calculate and pay commission on each of the loans from 11,000 brokers, they generate statistics/KPIs/etc (such as client retention, settlement rates) on all 11,000 brokers. The only thing that the majors don't do on an individual basis is the physical payment of commissions. And it would be a simple matter for the banks to track things like broker PI insurance, etc.

    "The banks need the aggregators to train and educate brokers"
    The majority of training comes from the lenders, organisations like MFAA, and external education bodies. The only training the aggregators do themselves is training for the aggregator's own processes/systems. And don't talk about business coaching etc. because I can get that from some very good 3rd-party business coaches on a per-demand basis as opposed to lumped-in with the aggregator costs each month.

    "If there were no aggregators who would provide the software?"
    Wow. How about the 5-6 external software vendors who have existed since the industry began? Does he realise that the lodgment software is not tied to any aggregator? And in addition, there are plenty of brokers who will not use aggregator-supplied software for very good reasons.

    "If aggregators didn’t exist there’d be no bloody brokers in this country, because it’s the marketing power of the aggregators that force the banks to pay commission and give individual brokers power"
    This is wildly not true. The brokers still with direct accreditations with the banks all receive similar commissions. And if this was true, the banks would pay different commission levels to different aggregators depending on size, clout, etc. The banks pay commissions because it is 3rd-party customer acquisition costs; they either pay these costs as fixed costs (branches), or variable (brokers). Either way they need to pay them. And the word 'commission' is half the problem... let's call it customer acquisition costs.

    "If there were no aggregators, people would just go straight to the banks"
    Again, huh? The aggregator provides nothing to the end-consumer.

    "they’d much rather everyone just logged onto their site and purchased their brands"
    Yes, they would since this provides more cross-sell opportunities. But, in the real world, consumers use brokers in 50% of the loans for good reasons. And remember that brokers are the largest source of new-business for banks. Brokers are here to stay.

    "It does not cost less to originate with a broker"
    Maybe. Maybe on a deal-by-deal basis. But overall the cost-savings from the broker channel are significant because branches and their staff, computers, salaries, etc are fixed costs and need to be paid regardless of loan volume. Broker channel loans are variable costs that only occur on the introduction of new business; which is much more efficient.

    Mr. Denovan, regardless of his moans and groans, did not answer the right question which is: does the introduction of the ACL mandate that the credit-supplier recognise the actual licensee as the loan's owner?
Post a reply