Former broker slams commission model

by Miklos Bolza23 Aug 2017
Commissions in the broking industry have been criticised by one former industry veteran as encouraging brokers to push higher loans on clients.

In an interview with Four Corners aired on Monday (21 August), ex-broker Philip Dempsey said that targets forcing brokers to lend a certain amount per month or cross sell products such as insurance were causing “serious issues” for brokers.

Those who don’t meet those targets are “transitioned out of the industry,” being unable to survive financially, he said.

He claimed this pressure incentivised negative behaviour towards consumers.

“There have definitely been cases where brokers have lent more money or encouraged people to apply for more money than they can comfortably afford to repay.”

One reason for this is the connection between the amount lent out and the commissions brokers received, Dempsey said.

“There's that immediate need to fill your own financial requirements, and it's very difficult sometimes. The lines can become blurred as to what's right: right for the client or right for me.”

While industry standards for borrowing used to be between three and four times the amount of combined gross income, this had doubled in recent times to seven or eight times, Dempsey said.

“So, if someone came to you and said, ‘We need to borrow seven and half eight times,’ that's not a big deal for most brokers.”

“They're going to get paid a commission on more dollars lent not on more clients in, just on more dollars lent.”

In the same Four Corners segment, Yellow Brick Road chairman Mark Bouris admitted there were rogue brokers in the industry.

“There's rogue in any industry, but there's definitely rogue brokers out there because you get industries growing really fast and there's money to be made. It's going to attract, on the odd occasion, the wrong type of people.”

While fraud did not dominate the industry, Bouris said there had been an increase in a “cowboy type” mentality where some brokers assume they can start up, make a quick buck and then leave.

The report claimed that brokers, lenders and developers encouraging people to borrow more than they could afford were one reason why Australia is so leveraged towards property.

Four Corners reporter Michael Brissenden interviewed Carlene Stafford who was approved to borrow $445,000 through ANZ despite the bank’s estimates of her financial commitments leaving her with $9.17 per month.

She said her broker filled in all parts of the application form including the sections she was meant to complete herself.

“He just got me to sign it afterwards and there's a little box on there on one page that said ‘Could there be anything that would change financially coming up?’ One of the questions was impending retirement sort of thing and I never ticked that either.”

Unable to earn enough rent to cover her mortgage repayments, she has been forced to sell the investment property. When interviewed, Stafford’s owned home would also be repossessed when she dies.

However, ANZ CEO Shayne Elliot who was also interviewed by Four Corners, said he had spoken to Stafford in person to learn more about the case.

In a statement released after the interview, ANZ said both parties had agreed upon a revised settlement plan as a result of the meeting.

“Shayne and Ms Stafford had a good meeting of minds and Ms Stafford acknowledged that she was responsible for declaring her estimated expenses and advising ANZ her financial position was not likely to change in the near future.

“Ms Stafford also accepted ANZ was not responsible for introducing her to either the developer or the broker and that we had written to her advising she was overpaying for her investment. Ms Stafford now understands ANZ was not able to provide her advice on her investment plans.

“For ANZ’s part, Mr Elliott recognised she has not missed an interest payment and had been targeted by aggressive sales tactics by both the developer and broker.”

Related stories:

Clawbacks “there for a reason”

Adjustments to commission needed: NAB

UBS commission calls “utterly wrong,” says FBAA

COMMENTS

  • by Sam 23/08/2017 9:01:01 AM

    Mr Dempsey's comments are not a true reflection of the real broker segment but rather a commentary on his experience as a broker working under the Aussie broker model. Being s former Senior Aussie mortgage broker I know that even as a strong loan writer it's very difficult to make a reasonable income at Aussie.
    After all it is effectively Aussie is a division of the CBA and we know how they are going right now with money laundering and the like so the pressure will always be in to meet KPI's or leave.

  • by Marty McDonald 23/08/2017 9:02:36 AM

    So sounds like the anz valued the investment property well less than contract and they notified her of that. Yet she still proceeded. You can't prorect all of the people all of the time from their own poor decisions.

  • by Sunshine Coast Broker 23/08/2017 9:10:02 AM

    What a load of rot. Since the introduction of NCCP and Responsible lending 99% of brokers are doing the right thing by the client and also the Lenders. This bloke simply displaying attention seeking behavior. I am proud to be a broker and also to be part of a large group of ex Bank managers who are all brokers and DO THE RIGHT THING!!!!!!!!
    We only submit loans that customers can afford and what lenders will approve. As far as doing a large loan for the sake of a large loan - well sorry but have not done that in 35 years of lending