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

by Calida Smylie31 Mar 2014
Clawbacks are not disappearing and brokers should be careful about ‘aggregator-bashing’, said a prominent financial services lawyer.

Gadens Lawyers partner Jon Denovan said to brokers wishing clawbacks would go away to “do the math” as it is not going to happen.

Instead, the solution which would benefit lenders and brokers is for the government to bring back client exit fees, he said.

“Everyone agrees they shouldn’t have banned exit fees. The reason the banks have clawback is there’s no exit fees. No-one would need to ‘bash up’ anyone else if there were exit fees.”

Borrowers switching banks every two years each time they find a better deal is not fair, he said.

“It’s so inefficient for our economy – it’s ridiculous and doesn’t happen anywhere else in the world.”

Over the past week Australian Broker ran a series of articles on clawbacks, which generated much debate over what the best answer is to the problem of brokers getting hard-earned commission taken from them.

One commentator suggested the solution to the clawbacks “mess” is for the lender’s contractual relationship to be with the broker rather than the aggregator.

The commentator wondered whether the aggregator contractual relationship is now at odds with the new NCCP credit-licensing regime and regulations, and if so, then brokers must lobby industry associations.

But Denovan does not believe this will work because very few banks want to deal directly with brokers.

“There are 11,000 brokers in Australia, and most of them are accredited with the four majors, and do you think the four majors are going to look after 11,000 people? They would find that all too hard,” he said.

“The banks need the aggregators to train and educate brokers, and give them systems to put into loan application forms. If there were no aggregators who would provide the software? The broker would have to have software for each different lender. The broker would go mad, or broke – and all before breakfast.”

Brokers who do not want to deal with aggregators are missing the point of why they are needed, said Denovan.

“I know the guys who run those aggregators and they fight very fiercely for brokers’ rights. 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.

“If there were no aggregators, people would just go straight to the banks. The banks don’t want to be paying commission – they’d much rather everyone just logged onto their site and purchased their brands. It does not cost less to originate with a broker.”

Denovan’s message to brokers who are ‘aggregator bashing’? “Don’t bite the hand that feeds you.”
 

COMMENTS

  • by SIDBROKER 31/03/2014 8:59:52 AM

    Swan, Rudd and company were the culprits here. Vandalism legislation to say the least. Pity swan kept his seat in QLD.

  • by Level Head 31/03/2014 9:07:38 AM

    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.

  • by Jack 31/03/2014 9:27:00 AM

    Good to see Jon Denovan defend the banks. Jon do you forget the banks did have exit fees and still charged claw backs?