New 'refund' broker: 'I learned from Ormond's mistakes'

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A recently launched ‘refund’ model mortgage broker says it offers a similar service, but won’t make the same mistakes as defunct business Refund Home Loans.

Arctic Home Loans is offering to return up to 50% of mortgage brokers’ upfront commissions to home owners to help reduce their financial burden.

Arctic chief executive Eu-Gene Yeap, who aggregates through PLAN Australia, says commissions are usually around 0.5% to 0.7% of the loan amount.

"For many people, getting an injection of funds at this time will provide some welcome relief. It doesn't matter whether you are plunging into your first home loan, refinancing or buying another investment property, the refund will be a handy bonus," he says.

Yeap says he realises mortgage broking franchise business Refund Home Loans grew quickly under a similar strategy, but had failed because of its funding model. He says Arctic won’t be dealing with the same fate, because the online model will lower costs.

"We know our model works because we have been using it with another one of our businesses, ESN Financial Planning," he said.

"We have been offering upfront commissions back to consumers in regards to superannuation and insurance for some time. We are not a franchise model and have built Arctic on very sound financial principles.”

Yeap says the average Australian mortgage has grown considerably over the past 10 years, from $155,717 to $296,288 and that Arctic has access to 32 lenders.

"The loans we write are the same made by the banks or mortgage brokers such as Mortgage Choice or Aussie Home Loans. Our point of difference is that we give something back to the consumer for dealing with us."

 

  • A.H on 1/04/2013 2:50:15 PM

    Some of us can't accept change and efficiency in the industry. It's the consumers who decide what model will work. Talking down a strategy like this shows your weakness. I don't think a real broker will be scared, it's the one hasn't cut their cost and hasn't improved their productivity will be. Who is the desperate one???

  • BJ on 28/11/2012 12:15:14 PM

    Congratulations Bill. An outstanding, articulate response and you have encapsulated the issues with crystal clarity.

  • Bill Walsh on 28/11/2012 11:13:04 AM

    Never paid a referral fee in my life - not even a bottle of wine. Why? Because I do a professional job and if you want to avoid any conflict of interest, it is the safest way to go. No complaints from my clients - that's for sure.

    So, BJ, as they say in the trade, "whatever"! It is what it is. If you are doing a job that someone else won't do, for a lesser price, it is ................???

    The Refund model undermines the industry and that is all it does. You can cut and slice it and serve it up however you like. But a turd is a turd and that's all it is!

  • BJ on 27/11/2012 12:33:02 PM

    Bill, you suggest these alternate broker models are run by novices, therefore I assume you have some detailed understanding of their business model, financial backing and the like. Clearly you do not, but more disturbing:

    Ultimately, the MFAA and the aggregators, such as Plan, Choice, AFG and whoever else is approached by people wanting to set this model in place, need to draw a line in the sand and effectively say no, to what almost amounts to scab labour!

    Surely you can’t be serious! Maybe, just maybe, I’ve missed an attempt at humour.

    Does anti competition alarm bells ring in your head?

    Old Broker, what solvency test have you applied? It could be that you are attempting to say the following “if you give away part of your commission you will technically be trading as an insolvent corporation”. This than raises the question “can the directors meet contractual obligations when they fall due”. One would expect they have addressed this issue.

    The certain type of client attracted to the new efficient model is potentially the savvy, switched on, cost focused borrower. Wouldn’t we pay to have these types of clients.

    Crabs in a bucket gentlemen. Let the market and the consumer decide if the efficient model will find traction and stop trying to stifle competition. These new business models will not reduce market share but encourage growth through awareness of a brokers service. You appear to fail to identify the opportunity.

    Rob makes a great point. We all pay for business, be it a bottle of wine, a referral fee or paying for leads.

  • Bill Walsh on 27/11/2012 10:23:24 AM

    Personally, I feel the only people who get on board with these sort of schemes are typically new to the industry - ie. novice's - or people who are struggling to get a foothold in the market - ie. plodders. They see this model as a quick way to grab some clients, but fail to recognise the costs associated with the new NCCP and just the overall time it takes to complete a "professional" mortgage application, with a "long-term" view to your clients overall wealth position. Ultimately, they are sending the wrong message to both the banks (who will wonder if they can squeeze commission rates further, for all brokers) and to the general public / consumers, who would start to feel the mortgage industry is very mish-mash, with disorganised industry and place in the finance market. They would certainly not engender an atmosphere of confidence for the mortgage broking industry and ultimately all they do is undermine the hard work of the established brokers and their professional bodies, who have strived to create a "profession" that can be relied upon by the consumer, for possibly there biggest ever purchase.

    Ultimately, the MFAA and the aggregators, such as Plan, Choice, AFG and whoever else is approached by people wanting to set this model in place, need to draw a line in the sand and effectively say no, to what almost amounts to scab labour!

  • Old Broker on 26/11/2012 9:55:01 AM

    Here we go again... and we pay membership fees and go to seminars to get rid of this type of behaviour only to see it come back in another form every few years. But I am puzzled how can you operate without being insolvent if you give away all your earnings...? is it just me or am I asking too many questions?

  • QLD Broker on 26/11/2012 9:45:56 AM

    If you don't value your service who will? Every other type of professional out there you pay a fee for! This type of ‘refund’ policy only attracts a certain type of borrower and is not a strategy long term; it’s simply a sales tool and is not at all helpful to the industry as a whole.

  • Adelaide Broker on 23/11/2012 12:42:12 PM

    © Arctic Home Loans 2012 ABN 89 156 583 765. [1] A minimum $500 application fee applies to cover our overheads.
    "Arctic Home Loans" is a credit representative of "Plan Australia" (Australian Credit Licence No. 392535).

    Application fee???????

  • Rob on 23/11/2012 11:34:26 AM

    I'm not a member of this group, but are all you telling that you don't pay referral fees to have access to your clients? The minute you enetered into this industry, everyone you have dealt with has had their hand out for their cut of the so called pie which is mi nimal at best. Get of your high horses and understand that this is a strategy built model. It's not a new one and not isolated to this industry. Businesses need sales, and this is another way of getting them. I think the negative comments come more from fear of losing market share. How can you also generalise that all the Artic brokers are not professional. I've come across some monkeys in this industry, that fortunately have made me look better. You will still have a growing trail book!

  • Coast Broker on 23/11/2012 11:23:40 AM

    Their website is wrong in that they state they are a Credit Rep of Plan Australia however it should read BLSSA Pty Ltd.

  • Coast Broker on 23/11/2012 11:19:59 AM

    Well said John Black

  • Keith Bridges on 23/11/2012 11:16:28 AM

    The model failed once why go there again. It is tough enough to make a buck without handing half back to a customer as a form of gratitude for their business. Good luck for anyone who get on board, it is another impending train wreck and the brokers' will be left on the platform penniless.

  • Michael on 23/11/2012 10:59:03 AM

    Just another bribery-based business model for people who can't "sell" their services.

  • John Black on 23/11/2012 10:51:10 AM

    What a disgrace. The message he is sending lenders is that their commissions are too generous. Given the amount of work a broker now has to do and the level of accountability current commissions are marginal at best. This person obviously must do less than is required to satisfy both lenders and clients and NCCP

  • BJ on 23/11/2012 10:46:18 AM

    Ozboy, I suspect they will handle reversals like any other business. Furthermore anyone can model for run off and revesals. Having spoken directly with the backers behind Naked Mortgages they are far from being wet behind the ears, very well funded and finance forms but part of the long term startegy. What is interesting is their willingness to engage with brokers and identify brokers as being an important part of the business model.
    Rather than bunker down, embrace new ways of doing business.
    Ultimatley it will be the consumer dictating success or failure.

  • ozboy on 23/11/2012 10:25:58 AM

    BJ how do they handle clawbacks? Couple of smart investors with a sizable loan portfolio, a little bit of time and a couple of refund models and who will need to work! Sounds like a great business model for clients, not the business (can you really call refunding your income a business?). And yes we know you can commence legal action to recover your clawback but this will take time and money.

  • Scott on 23/11/2012 10:20:48 AM

    Interesting responses. I am neither agreeing or disagreeing with him but it seems people are more afraid of this catching on than anything else.

    It also looks like no one has really studied what he has said. He is giving away 50% of his up front, nothing is mentioned of his trails. I guess he will be keeping 100% of those. If so, and his loans runs 5-6 years, really he has only given away about 25% of his total income.

  • Steve McClure on 23/11/2012 10:18:22 AM

    Good way to get publicity, bad way to do business. Established a few weeks and lists an incorrect ACL nbr on the website - not exactly brimming with competency and compliance.

  • Country Broker on 23/11/2012 10:16:36 AM

    OH DEAR here we go again , now its half commission back ? Financial planners charge a fee for service !!!!!!!!!!

    Please stop giving these smoke and mirrors people any publicity! this will end up like the rest of these schemes , in tears for any one silly enough to join !!
    If the models work why have the large Aggregators and Brokers not done it , easy they know it will not work .

  • Cindy on 23/11/2012 10:11:31 AM

    lol... Another one.

    I suggest also you tell the client his entity to claim or seek for 50% refund to the conveyancing fee, 50% refund from his accounting fee, 50% refund on his building insurance...etc.

    But I don't think that's even enough, I think you should refund 100%, your client would be delighted, give me your contact I will refinance my loan with you.

  • Coast Broker on 23/11/2012 10:02:29 AM

    Arctic will not survive long on that basis. As a Plan Member myself I am sure that this business model cannot be sustained. Plan is an advocate of Fee for Service however as an Aggregator they cannot say to a Member either existing or new they cannot have this business model. After all we do live in a democratic society so only time will tell. Even using Plan Lending they would not be able to adjust the interest rate to increase their commission. Only time will tell.

  • Brokers Broker on 23/11/2012 9:49:19 AM

    Good luck with this. Sound like a future group ok "broke" people not brokers.

  • Incognito on 23/11/2012 9:48:02 AM

    Bank commissions pay me to prepare successful applicatons.

    I'm beginning to charge clients (especially marginal / doubtful clients) for advice before i even get to the application.

    This guy want's to give back half of the bank's commission?

    Good grief.

  • BJ on 23/11/2012 9:47:38 AM

    Well, despite all the bitterness about these broker models, the reality is they will continue to enter the market.
    The most compelling model and one which has garnered little coverage is Naked Mortgages. This group has invested significantly in the online space and provides for a dual offering i.e. 100% online and a full broker service and 100% of the broker upfront commission rebated to the borrower.
    I further understand they go to full Australian launch in early 2013. From my perspective it is a positive development and quality competition only serves to grow the pie.
    There will always remain a place for QUALITY service focused EFFICIENT brokers, however, rapidly is departing the days where you can write one or two deals per month and survive. The inefficient broker/aggregator model is destined to change. This is a good development for the industry.
    We need to focus on growing the pie, informing consumers of the broker benefit and value and stop acting like crabs in a bucket pulling down those that seek to develop new ways of conducting business.

  • Christopher on 23/11/2012 9:32:41 AM

    Why don't you canvass the banks for the reduction of upfront income to say .25%? Great business model, then you don't have to refund your commission... You've gotta be kidding saying you've done your research into this model. It can only head one way and thats failure, the industry is maturing with the introduction of NCCP which in effect says your on your way to becoming a professional but this is a reduculous move. You're saying to your clients, your lenders and other brokers that the upfront commission on every deal is too generous. Try running a business long term paying for costs such as staffing, rents, legals, seasonal adjustments, advertising, accounting with half the income???? Good luck

  • Kevymac on 23/11/2012 9:24:21 AM

    You pay peanuts you get what you pay for. My clients have no issues with us receiving comms and many pay service fees for work.
    You have to have a screw loose to get on board with this.

  • Refund Broker on 23/11/2012 9:21:04 AM

    To lear from the copious number of mistakes Ormond and directors made before the final end, you'd have to know what they were, we don't know the full extent, so how could you claim to. Just a warning, if you are buying into a franchise, be sure you will get what you are paying for, be sure you will get something tangible. and be sure they are giving back the support they promise.

  • Rachael on 23/11/2012 9:20:55 AM

    Oh dear, lol

  • ozboy on 23/11/2012 9:06:41 AM

    Artic great name. Anyone else get the correlation. In regards to writing the same loans that is correct but no mention of the service provided. At the end of the day we all know you get what you pay for. We operate in a service industry yet you don't have a service USP. How desperate are PLAN to have a member like this.

  • SteveL on 23/11/2012 7:40:10 AM

    No you didn't.
    value what you do and people will pay what you believe your value is!
    What you are really saying is you do half a job by giving away half your commission, not to mention how desperate this really sounds. BAD business Model! B.A.D!!!

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