'Brokers are not commission-earning machines'

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Brokers are fuming over Jessica Irvine’s mortgage-brokers-as-washing-machine-salespeople comments in the Sunday Telegraph and some are biting back.

 Darren Moffatt, owner and director of Seniors First, describes himself as a “big fan” of Irvine’s regular columns, but says she missed the boat completely in her article ‘Borrowers beware, you must shop around for the best value home loan,’ published on Sunday.

“Her attack on mortgage brokers might make for a nice headline,” Moffatt said, “but it’s riddled with factual inaccuracies and omissions. It’s not even a real story – everyone knows that brokers are paid commissions by the lenders and that is how it’s (mostly) kept as a free service.”

In the article, Irvine warns borrowers to treat mortgage brokers like appliance sales people, saying that the fact brokers are paid commissions makes them an unreliable source of balanced information.

“Mortgage brokers are paid entirely on commission they don't get paid unless they sign you up for a loan and those upfront commissions can vary from $2000 and $4000 depending on the lender. We'd like to believe most people are honest brokers, but when a broker can double their money by putting you on one loan over another, that creates a conflict of interest.”

This was something that Choice: The Peoples Watchdog’s Matt Levey agreed with, reminding readers in Irvine’s column that mortgage brokers are salespeople who shouldn’t be relied upon to offer unbiased or comprehensive financial advice.

Irvine goes on to claim that many brokers are failing to adequately disclose commissions they receive from lenders – something which, Moffatt says, is both illegal and unlikely.

“It ignores the reality of the government’s recent efforts to legislate against this concern, among others. In 2009, they introduced the NCCP act…If, as she claims, brokers are not disclosing, then the bigger story would be the failure of the government policy."

Moffatt ways it’s impossible for any authorised credit representative not to disclose exactly how much they’re getting paid, unless they’re deliberately trying to break the law.

MFAA CEO Phil Naylor agrees, saying the assertion that brokers don't act in the best interest of borrowers lacks any foundation.

"Transparency is a a key aspect of how mortgage brokers operate and it is unfair to assert that brokers are not providing unbiased and comprehensive infromation, when it is published material for the borrower in the loan documents they review and sign."

Naylor says all of MFAA's 11,000 members are upfront about the fact that they are paid by commission on the loans they provide, with strict government and industry rules in place to ensure they comply.

In her article, Irvine goes on to recommend the usage of sites like iSelect and Rate City to borrowers.

“From the comfort of your own home, you can check out the best deal and then approach a shortlist of lenders to apply for a loan. I know that's what I'll do when the time comes."

But Moffatt says it’s not that simple – these sites also receive income from banks and lenders for introductions to potential borrowers.

“Brokers are not just commission-earning machines,” says Moffatt, who calls Irvine’s washing machine analogy “insulting.”

“The comparison is erroneous…a mortgage is a much more complex product, with deep financial and emotional implications for the consumer. This is a comparison only an economist would love…In the fragile eco-system that is the Australian mortgage market, brokers play a vital role in keeping the flame of competition alive.”

  • South Coast Broker on 24/11/2015 1:14:18 PM

    So Kerry, using your analogy, does the borrower (not the lender) also pay for branch staff wages, training costs, premises costs, operating expenses, etc.?

  • Regional Broker on 24/11/2015 11:52:57 AM

    Really Kerry, the comment is just plainly wrong, our up front and trails are paid by the banks. If the client paid us we would not have "clawbacks".

  • Broker on 24/11/2015 10:17:31 AM

    Sorry Kerry, but that is utter BS.

    Are you suggesting that all lenders offer better rates by going direct, well that is just not correct.

  • Kerry Neville on 24/11/2015 12:40:46 AM

    The lender doesn't pay the broker commission, the borrower does.

    Also brokers do not seem to know or pretend to not know anything at all about the role of loan account servicers.

  • Jackson on 24/03/2014 9:31:23 PM

    Really, "Country Broker" ? What exactly do the following words mean: Tghe,wejat - not a great recommendation. You must confuse your clients enormously.

  • Kaori on 12/01/2013 6:58:51 PM

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  • KT on 4/12/2012 5:21:15 PM

    I agree that MFAA needs to do a better job of explaining how brokers offer better and more advice than staff at a bank branch.

    For instance, I've had several clients in recent memory where the client saw the bank branch staff prior to seeing me, and they tell that the bank staff explained to them that the offset account and loan redraw facility are the same thing!.......what rubbish

    Being also a licenced Tax Agent, the tax implications of using a redraw facility over an offset account is very obvious to me and I need to explain this to my clients who want investment home loans.

  • Jim S on 4/12/2012 11:48:40 AM

    My aggregator does disclose all lender commissions..

  • Greg Reid on 28/11/2012 9:43:16 AM

    It was a poorly written article confusing two issues, one is the cost to the client of a loan and the other is the issue of commissions. Unless a loan is a white labeled product where a broker can set their own commissions, the commission paid by lenders is simply a cost to them that they absorb to run another sales channel. What they offer to brokers is based on their own marketing position, cost of funds and profit requirements. It is not an additional cost to the client. This is the point that was missed in the article.
    The client gets the same interest rate as they would if they went to a branch themselves - presuming they knew to ask for discounts based on LVR and/or loan size or to match against other lenders.

    If we are recommending lowest cost of loan over its life or a choice of lenders (or whatever period agreed upon and as long as it is suitable and appropriate) then the commission is irrelevant to the client as it is not a direct cost to them.

    You would have to be an ostrich if you thought some brokers did not recommend certain lenders above others based on personal benefits, whether they be commissions, meeting volume targets or even ease of processing, it happens. However under NCCP rules commissions should be disclosed. What I do not like is that we no longer disclose all lender commissions as I did under the older finance broker agreement. The aggregator CRM spits out a client disclosure proposal for commissions to be paid but only for that lender.

    I agree with Positive Broker, we need to address what we do as brokers and what we offer over and above what any bank staff can do for a client.

  • Positive Broker on 27/11/2012 1:02:02 PM

    Totally agree BJ. I too am disappointed at Irvine's comments but our best response is to get our view across in the press. The fact that the article got written in the first place tells me we have an image problem. We need to address that rather than engaging in a slanging match.

  • BJ on 27/11/2012 11:02:45 AM

    Good God

    When you joined the industry, was part of our kit a shovel??? Just how deep do you want to keep digging?

    If we can’t contribute with some sensible comment and debate we should stay off the posts.

  • Gary Perth on 27/11/2012 10:46:43 AM

    Disappointing that the media in Australia is following the world wide trend of sensationalism.
    For Choice magazine, shame, your foray into the commercial world was a failure, you have lost sight of the goals set 50 odd years ago. Lack of research, truth and real effort by Ms. Irvine has put journalisim one step closer to the coffin. The head stone is already written 'Having a Lend"

  • BJ on 27/11/2012 10:32:20 AM

    Rather than going on the defensive over Jessica Irvine’s comments the industry should attempt to engage and educate. But it appears, we the industry, continue to move to the fall back position of “the home loan process is complicated”, “a broker needs to be paid for his expertise” and “with the myriad of home loans out there, you need a broker”.

    Consumers read these posts and I just loved the comment last year in one posting and I quote “home loans are pretty much the same”. So how can we criticise when we contribute to the debate with a less than well thought out argument.

    The so called free service argument is weak in my opinion. A free service equates to “ZERO COMMISSION” but a far more competitively priced product i.e. rate! Using a basic calculation (results presented as estimates) because the lender's rate may not be based on simple interest and assuming a commission of say 60 bps upfront and 18 bps trail, produces an interest rate of circa 5.38% over 5 years with a starting rate of around 6.10%. Sure I could be a little more accurate but I am not building a spread sheet to argue the math, but to demonstrate we do not provide a free service.

    Our brokers are paid for quality advice and delivery. If they do not deliver no one is paid! Breaking down commission into bite size costs i.e. % for marketing, % for fixed over heads, % for variable and if we run a good business a % for the dirty word PROFIT!

    As brokers we should promote our business, our industry, as a profession and educate the wider public and commentators like Jessica Irvine. I doubt Ms Irvine has ever sat with a professional broker and considered fully the process and the service we provide. Our service is value and most professionals are paid an hourly rate. Educate her so that she understands precisely what it is that we do and quantify the value we add. Naylor and his team, Moffatt and others should learn to engage rather than react.

  • Tony Smith on 27/11/2012 10:29:34 AM

    Wow ! .... she is a journalist and an economist, now they are two really credible career choices. She must know what she is talking about. Just ask Rupert Murcdoch or Rebecca Brooks about credible reporting and trust... just dont let the facts get in the way of a good story. As for economists, I would say at best they do guess work based on historical data, and also a good dose of follow the leader in predicting outcomes.
    Really poorly researched and insulting story. She may be really annoyed as a broker probably told her she could not afford a home loan.Still she achieved all that matters, we now know her name !!!

  • Paul Raad on 27/11/2012 10:12:41 AM

    This was something that Choice: The Peoples Watchdog’s Matt Levey agreed with, reminding readers in Irvine’s column that mortgage brokers are salespeople who shouldn’t be relied upon to offer unbiased or comprehensive financial advice.

    Is this not the same Mob that brought us the big flop.. "The Big Switch" which they stood to earn millions in Commission on. Hard to take anything reporters say seriously when they don't even research the people they get quotes from let alone the information they get given.

  • Country Broker on 27/11/2012 9:42:22 AM

    Tghe best thging we can do as i said yesterday is let the MFAA do wejat it does best AND if you are a CHOICE MEMBER cancel your membership and tell them clearly why you are doing it!

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