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Hot topic of the week: Clawbacks

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Australian Broker | 24 Mar 2014, 07:00 AM Agree 0
Brokers spoke up in droves after an article on Friday on the unfairness of clawbacks
  • Tony Egan | 24 Mar 2014, 10:13 AM Agree 0
    It would be nice if the aggregators banded together and declined to have lenders on their panels who clawed back commissions from brokers -except in certain circumstances such as churning. Unfortunately I doubt it will ever happen as it does not affect them personally..They put their hand out every week for their pay and then tell us that claw backs are just part of doing business. Ha.
  • mrs skybum | 24 Mar 2014, 10:51 AM Agree 0
    I had a clawback years ago where i did a construction loan. At the end client said i gave excellent service but that didn't save me when they needed extra money and their combined wages did service an increase and the only way they got that was for someone to do something they shouldn't have yet i got punished for trying to do the right thing where is that fair. How about we take some of their hard earnt wages back a year after the deal and see how they feel. Bet u they wouldn't like it but us brokers have no choice.
  • Broker - 15 Years | 24 Mar 2014, 10:57 AM Agree 0
    Every business has issues which are outside their direct control however it is the responsibility of the business owner(s) to create a strategy to mitigate the effect or risk of these issues.
    Clawback in it's basic form is simply an expense passed on to a distributor by a supplier and therefore it is logical & common business practice for this additional cost to be passed on to the consumer.
    This can be achieved simply & legally by including a "Clawback Refund" clause within the Mortgage Broking Contract / Quote as referred to by "Broker" & "Tim H".
    Why play the "Blame Game" when a simple & effective solution is available to all Brokers.
  • Russell Watson | 24 Mar 2014, 11:02 AM Agree 0
    Banks love to avoid risk and claw-backs are one way they push risk off their own balance sheet and on to brokers. If a loan was written in a branch and then closed down 10 months later, would the branch loans officer have his pay docked? Of course not.
    The work done by brokers is continually devalued by banks despite them trumpeting how important we are to them. There are many reasons a loan may close within a year or 2 of settling. Almost all of them have nothing to do with the broker and should be included in the normal risk a bank takes in doing business with any client. We are writing 50% of the overall loan business but we do so at the risk of working for free as an extension of the bank. We have a function as part of the banks risk mediation program and we are regarded as worthless by the banks unless they are seeking our support for their loan sales process
  • Troy McLachlan - Future Financial | 24 Mar 2014, 11:21 AM Agree 0
    It has been interesting watching this debate play out over the last few days with some very valid points from all sides.

    At Future Financial we never introduced clawbacks and will continue to offer this value proposition in support of our Brokers.

    When DEF’s were removed we spent a lot of time internally working through our numbers and calculating what the cost of clawbacks from our Funders to Future Financial would possibly be. On these numbers we decided as a business that we would not pass this cost onto our brokers.

    To date I am happy to say that we have only had two (2) brokers abuse the system who we have chosen not to deal with anymore.

    However, for all the other brokers who would have normally had their commission clawed back for situations out of their control Future Financial has covered this cost and will continue to do so for those who do not abuse the system.

    Further, we have been under “budget” for clawbacks that we have not passed onto our Brokers since we chose this model several years ago.

    If a reasonably small Mortgage Manager can offer this in the market and maintain strong profitability, I ask why other Lenders in the market cannot offer No Clawback or even an option/model in between what is currently on offer??

    Efficiency is the key to any business, particularly when you are part of a distribution model and do not have 100% control over all factors. We would not be able to offer our No Clawback model if our business did not operate efficiently and effectively within our budget. We consistently monitor our run off and clawback and work hard on implementing processes and systems that reduce the likelihood of such events happening. We will always have events such as death and divorce that are out of our control and the Brokers control which we will continue to wear the cost of.

    But on the other hand you can’t have it all!!! There has to be some consideration from Brokers in placing their business to lenders who have zero fees and extremely low rates or fancy marketing campaigns that the lenders have to cover the costs of these promotions somewhere. There needs to be a clear shift in the broking market where a better understanding of what’s on offer is considered and understood and a clearer understanding of what “Not Unsuitable” means.

    Choosing the cheapest rate or zero fees does not make the loan anymore “suitable” than one that may have a small application fee or slightly higher rate. There are other options in the market and I urge you all to spend time working on your business by gaining a better understanding of what’s on offer from your lending partners, including rates, fees and how they look after your customer for the life of the loan. There is plenty of competition in the market and some of the best lenders include Mortgage Managers and Non-Bank Lenders that don’t have the millions of dollars in marketing power to cut through all of the other lenders marketing.

    Brokers need to take control of their destiny and have their own Credit Licence which will further enhance their independence and assist them in maintaining control over their business. I believe this is one area that the industry could be a little more proactive in by educating Brokers and new to the market entrants that obtaining and maintaining your own Credit Licence is not too complex or costly. Maybe spending a few thousand dollars getting some advice from a Lawyer or organisation such as QED Risk may save you thousands or even hundreds of thousands in the future
  • Joseph Meyer | 24 Mar 2014, 11:26 AM Agree 0
    "Claw-backs" were designed for no other reason than to ensure that brokers did not continue to roll over customers for additional commission and for the lender to retain the business for as long as possible. Make no mistake and take no other reasons or excuses! So now that early termination fees and recent consumer credit legislation changes have come into effect so clawbacks should be abolished. The lender can or should be able to monitor broker behavior to ensure that the customer roll over rate remains normal. And there are many legitimate reasons for clients changing lenders including poor service from existing lenders, more competitive deals elsewhere, buying and selling property and all at no fault or intervention by the broker. Congratulations to the first lender to get rid of them, just be prepared for the influx of business!
  • John from Geelong | 24 Mar 2014, 11:32 AM Agree 0
    Our Aggregators are the ones who allow these conditions in their negotiation. A structure where clawback amount is reduced by 1/24th each month over two years (1/18th over 18 months) is much fairer. I've never understood why a tiny little broker has to fund the operation of a bank.

    If I suspect the liklihood of clawback, I will charge a brokerage up front.

    The banks could all treat us more fairly but that's not their headspace, we are a necessary evil is my reading of it.
  • Tony O | 24 Mar 2014, 11:54 AM Agree 0
    Surely for the number of them there are the lenders could look at each case on it's merits !!! I've probably only had 2 in 10 yrs, but still completely agree both were unfair as beyond my control and not related to anything I did or the lender.
  • Common Sence | 24 Mar 2014, 11:58 AM Agree 0
    I have been a broker for over 8 years and I have included in my finance quote any clawbacks to cove my income. But simply brokers need to assess the lender they use if the clawback is unfair don't use that lender.
  • scratch | 24 Mar 2014, 12:03 PM Agree 0
    CBs are a rarity in my business with or without the agreement, but I still put a clawback provision into my FBC years ago and have litigated clients on them and and have also litigated with clients on fees which were unpaid - this is after we tried to negotiate with them all. Note every case we have won and I am glad that I can still make payments on my personal debts where if I didnt have them it could be putting you into trouble.
    I also think there is something to discuss here in terms of ASICs liquidy rules perhaps? If a small broker gets a double clawback of say 5k x 2 months back to back I'd bet their business would struggle and so would they financially.

    the long and short of it is that its your business and its your asset. If you want to add the additional level of protection to your asset then bring in the provision and at least have a point to start to negotiate from. If the MFAA or FBAA or your Agg says you cant do them then Id be thinking these guys arent keen on me making sure my business is long term viable and a bit more iron clad.

    Clients ultimately have a choice - they can either agree to the contents of the finance contract or they can go somewhere else and let some other broker have the headache or to some branch. In so many cases its easier than having to chase them to let the biz go.
    Otherwise if a CB is looking to happen you'd use a non CB lender.

    Although I do infer from reading the comments that even some who dont CB wind up terminating your accreditation if they get hit with too many.
    Adelaide bank used to have it right years ago - include it in the payout figure.

  • broker wa | 24 Mar 2014, 12:12 PM Agree 0
    PFG Mortgage Managers also offer their accredited brokers zero claw back on their residential/commercial loans.
    Also the ability to increase trail income
  • Denise Brailey BFCSA (Inc) | 24 Mar 2014, 12:35 PM Agree 0
    Aggregators are an additional cost to consumers and unnecessary. Why not have the Lenders hire Brokers direct rather than the invented middlemen? If Lenders approved what THEY say is prudent lending, then why the need for Clawbacks? The Banks approved the loans did they not? So they want the Brokers to pick up the cost of the Lenders' own bad behaviour? ASIC has not prosecuted any bankers for maladministration in lending.
  • Brian Doyle | 24 Mar 2014, 12:40 PM Agree 0
    Well said Troy McLachlan. I have been dealing with Future Financial since their inception and clawbacks are a non event with any business I give them. They minimise their own claw back costs partly because they refer payout enquiries and potential discharges for refinance back to their business partners to follow up alongside their own retention team.

    It is a two way street - if a client is not happy with some aspect of their loan product or lender relationship I go back to Future Financial and work with them to resolve the issue, so they retain the loan. We both win.

    I can not say the same for other lenders I deal with. A recent clawback was the result of the bank rewriting my $500K + loan because the client had gone direct to the bank for a car personal loan of $20K. No referral by the bank back to me. The borrower assumed the bank liaised with me and did not think to contact me to discuss personally.

    My suggestion - give Future Financial an opportunity to show what they can do.
  • Denise Brailey BFCSA (Inc) | 24 Mar 2014, 02:04 PM Agree 0
    WE have consumers being told by banks they cannot show the customer the file as it is "commercially sensitive" or "shredded" or missing."
    Ask for client to ask for their Loan App - bank's copy - as it will differ from the one submitted by brokers. Why are the Industry bodies not questioning these anomalies in processing of loans? Something is not quite right.
  • Ron Guthrie | 24 Mar 2014, 02:20 PM Agree 0
    I beg the question " Do you know who owns your Aggregator " ? Best you find out, as knowledge is a powerful thing and you should know who you are "in bed with ". You may very well be surprised at what you learn !
  • Darryl Benn | 25 Mar 2014, 09:41 PM Agree 0
    One must be very careful for what they wish. The lender can remove the 'clawback' in an instance, if that is what we want. What they do is have their "risk dept" recalibrate and amend the upfront payment structure or remove upfront payments all together to accommodate broker requirements, no more clawbacks!

    Now that does not mean I don't support the unfairness of 'clawback' it is all one sided in favour of the lender.

    Maybe instead of trying to fight the lenders on this we develop another way to combat potential losses. I await your suggestions?

  • Positive Broker | 29 Mar 2014, 09:07 PM Agree 0
    Its nothing more than a DEF. If we said DEFs are unfair how can we impose it in the client. If there is any suggestion the client may discharge early we need to charge an up front fee.
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