Cannon to brokers: 'Stiff' clients at your own risk

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Firstmac managing director Kim Cannon has said brokers and aggregators are too often focused on income, rather than finding out what’s best for clients – and that could have serious repercussions.

In an exclusive multimedia interview, Cannon told Australian Broker that broking groups need to clean up their act if they want to avoid ASIC stepping in to further regulate white label products.

“It’s all about what the aggregators are pushing people to do. It’s all about income now," he said.

"There’s been a number of lenders out there who have been involved in white labelling who used recent rate drops to stiff the clients, to take a bit more extra margin.”

Cannon says the possibility of ASIC regulating white labelling is a serious concern.

“The next thing you look at is the licencing side of things – is what has happened in the financial planning industry about to overtake the broking industry in the near future? Is the quest for commission going to be outlawed because people weren’t selling the right products?”

Jon Denovan of Gadens Lawyers agrees, saying the system in place is not different from any other industry in providing two levels of competition, but that it’s inappropriate for brokers to be pushing white label products in the sole interest of personal gain.

“Competition is good for consumers and it’s good for the economy – but competition that damages consumers by having a trusted advisor sell them something that isn’t right of the them is bad competition.”

Want to see the full multimedia interview? View it now, on Australian Broker TV.

  • Mark S on 16/11/2012 2:10:51 PM

    I think Kim has a valid point. There are brokers out there who if they have the opportunity to set their trail margin or upfront amount, they will increase the interest rate to the client so they get much higher upfront and trail. Most brokers wouldn't do this, most are honourable and honest and look after their clients interests as much as they look after their own interests. However, there are still some rogue brokers out there fleecing clients with cash 'service fees' which they charge the client upfront and regardless of whether they get the client an approval or not. There are also brokers out there clearly still creating income documents for clients when a client cannot supply payslips or letters of employment. As a mortgage manager we have seen discharging clients who we could not possibly complete a refinance for as they do not have enough income, are unemployed etc, yet those same clients manage to get a loan approval organsied by a rogue and dodgy broker. Kims underlying message (although limited to pricing issues) if I read it correctly, is be greedy at your peril. Greedy brokers will hurt our industry and can potentially hurt white labelling.

  • PeterT on 16/11/2012 12:24:49 PM

    Isn't it a bit hypocritical for the chief of FirstMac to be saying anything negative about white label?

    I've never been interested in whitelabel products that allow brokers to price it themselves, but the simple solution is to simply factor in a 0.6% upfront and 0.15% trail. Those commission levels hardly imply a conflict of interest.

  • Manly Dragon on 16/11/2012 12:27:27 AM

    is he saying every broker/aggregator or just the ones associated with firstmac?I normally don`t read this sort of rubbish comment as I totally disagree.

    I do agree with 1martym1. I have just received an enquiry for a client looking to borrow $1m who went direct to Westpac. the branch manager offered her 0.70% off SVR when we are openly offered a much larger discount via our channnel. Maybe the branch is being driven by its profit targets but seems that this is ok. she wants to stay with Westpac who we know offers the lowest up front & I will assist with this even though I would get more income if I was to take her elsewhere including a refi of her existing facilities. what do you think of that Kim? I am not in the minority & believe most brokers would do the same.

  • Papery on 15/11/2012 3:01:49 PM

    The product may be 'not unsuitable' & be the sharpest pricing on the day of application. The sting comes later when that same product is no longer as competitive as the tradtional lenders option because our white labelled friends have shaved back delivery rate margin to recover their margins. Seems to me most white label products are no better than an undisclosed honeymoon rate.

  • 1martym1 on 15/11/2012 1:44:29 PM

    What about a lender direct where they dont give as big a discount to one client as they do to another? Aren't brokers and lenders covered under the same rules? I cant see any difference. This is exactly why the lenders pushed ASIC so hard for the not unsuitable clause ie so they could price as they saw fit and werenmt compelled to give their best price every time. One rule for them one for us again?

  • Moonae on 15/11/2012 11:05:33 AM

    Call it white label - Aussie home loans was essentially "white label" and look what that did for competition in the 1990's. Banks themselves operate on a cost of funds plus margin principle - why is white label today anything different. If an organisation can put a product out there at the right price and attract a client to take that deal when put up against whatever else is in the marketplace, thats competition. If the Banks cant handle that then the industry is on track in shaking things up. If ASIC can't handle that then unfortunately the sabre rattlers aren't serious about letting competition prevail. NCCP has enough provisions to deal with misuse of white label pricing. It's just another product.

  • EJN on 15/11/2012 10:59:17 AM

    Stiff the clients with a rate reduction...why are they being stiffed? The average clients are generally chasing the rate. If that's what the client wants and the product is NOT UNSUITABLE which is what the guidelines state as a key criteria, then what's the problem? I haven't had a client choose a white labelled product yet but it has many times fallen into the options presented as it has been deemed as not unsuitable. If the white labelled product attracts the interest of the applicants and the rate is hot, again, what's the problem. The product sells itself.

  • Country Broker on 15/11/2012 10:51:44 AM

    Oh here we go again, what happens if the white label product is "not unsuitable" and is competative on rate and terms / conditions and costs ?

    If I am a broker who has proof I have run comparisons on say 3 suitable products one of which is a white label product from my Aggregator/ Broker group and it is clearly the most suitable , where is the problem??

    If I am recommending that product without comparisons , then I believe that would be an issue and I may have to declare a conflict of interest ,

    The problem here is the commentators have never been in a face to face broking suitation and are offering commentary yes they are relevant but are too narrow.

  • ozboy on 15/11/2012 10:38:55 AM

    “Competition is good for consumers and it’s good for the economy – but competition that damages consumers by having a trusted advisor sell them something that isn’t right of the them is bad competition.”

    And this is why we are a nanny state. When does the consumer take some responsibility for their decision. You cannot protect everyone from themselves and we need to stop thinking we can and educate people to give them better tools to make better decisions.

  • Brisbroker on 15/11/2012 10:32:11 AM

    Can someone please explain why Australian Broker thinks that we hang on every word that comes out of this blokes mouth. Any chance of getting an impartial opinion from someone who isn't just pushing their own barrow?

  • Shawn French on 15/11/2012 10:24:35 AM

    If a broker puts their interest ahead of that of the clients then they should be penalised, not the industry. I don't know of any brokers who would not put the clients interest first and foremost in every dealing. You would n't be in business for long or have a client base if you didn't look after your clients all the time every time.

  • Clint Waters on 15/11/2012 10:15:39 AM

    Fair point but our white label product (PLAN Lending) is often a brilliant product offering price wise (no controls on margin are available on our suite of products which I think is a good thing).

    Because it lacks some bells and whistles (like offset) its still not our number one lender/product but I see it as a win-win scenario for clients not needing certain features.

    Our Credit Proposal document discloses our earned fee as well of course.

    Brokers loading rates for bottom line gain is not a good thing IMO.

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