Mortgage manager opts for fee-for-service model

By Larry Schlesinger | 01 Jun 2009

In what may be an industry first, new mortgage manager, Vanilla Loans has ditched the commission-based model in favour of a fee-for-service one.

Rather than pay brokers directly, the lender will "support brokers to charge fees to clients and assist them to collect the fees".

Vanilla Loans managing director Geoff Brieger said it would encourage brokers to charge borrowers a fee of between 1% and 1.5% of the loan amount.

"The savings to borrowers are incredible under the true broker model. On a $250,000 loan with commission at 0.6% upfront and 0.2% trail, a borrower will pay more than $11,000 in commissions over the life of the loan. Compare that to a once-off fee of 1.2%, or $3,000, and the numbers speak for themselves", he said.

Asked why a broker would want to play in the fee for service space, Brieger used the example above to explain that brokers will generally earn about $3,000 per loan anyway, because people tend to move home or refinance every three to four years.

Kim Cannon, managing director of FirstMac, one of the funders of the product, said: "If I was a broker, given the choice - I'd rather get my money upfront."

Besides benefiting borrowers, Cannon said it would give control back to brokers by allowing them to set their own commission levels and do away with "impositions such as clawbacks and volume hurdles".

Related stories:

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Commented by: James Smith at 01 Jun 2009 10:11 PM
No brokers will write loans with this manager.

Commented by: Monkey boy at 02 Jun 2009 12:42 PM
Just don't get this. Did Vanilla do any research in trying this new flavour? In one paragraph Geoff says a borrower pays $11,000 in commissions. Then he says they don't really because loans don't last that long....huh??

Commented by: Confused at 02 Jun 2009 04:50 PM
I agree with Monkey boy, this product is full of cotradictions. What rate would the client pay??? On one hand you talk about how much the broker earns and on the other hand you talk about how much the client will pay over the life..but you also say that the client refis every 3 years....won't work....

Commented by: Jim Molloy at 02 Jun 2009 04:51 PM
"The savings to borrowers are incredible under the true broker model.On a $250,000 loan with commission at 0.6% upfront and 0.2% trail, a borrower will pay more than $11,000 in commissions over the life of the loan" - since when did the borrowers pay the commission to the broker, how on earth does this benefit the borrower? Is this new operation anything to do with Vanilla Ice?

Commented by: Gavin Maslen at 02 Jun 2009 04:56 PM
I don't get this either.

Commented by: Graham at 02 Jun 2009 04:57 PM
What a load of bollocks

Commented by: Terry B at 02 Jun 2009 04:59 PM

Sadly this looks like a rat, smells like a rat, me thinks ia a rat... Does Vanilla charge an interest rate .6% below the average big 4 Pro Pack rate? eg CBA MAV Pack currently at 4.94% Variable, to make Geoff's statement correct, then Vanilla must only charge the client 4.34%pa or less...
Because CBA pays me .625% up front & .15% trail after 12 months & is charging my clients 4.94%pa variable on their MAV Package.

Commented by: Spade Newsom at 02 Jun 2009 05:07 PM
Brakers can already choose to operate this way if they are inclined. A broker can charge a client a fee and then refund the commission. Regular occurence in the commercial and agri broking sector. Less 10% for the aggregator of course. Brokers choose not to do this in the residential arena, why??? Because clients choose not to pay fees upfront in most cases.

Commented by: truthseeker at 02 Jun 2009 05:10 PM
We cant let this happen people...This smells like Big 4. The savings wont be " incredible"..It will be the MM pockets that will be incrediblely full.. What a load of sh_ite.

Commented by: RTG at 02 Jun 2009 05:16 PM
As one commentator already wrote, it all depends on the rates offered. If the rate is SUBSTANTIALLY better than the big 4 ... it might have a chance. Otherwise, this is a naughty joke.

Commented by: Louis at 02 Jun 2009 05:21 PM

By the lender (non bank) not paying the broker commission, by sacrificing upfront and trail of 0.6/0.2, the rate can reduce by 0.35%. On a $250,000 interest only loan for 5 years, the interest saving is $4375. However, the saving increases depending on how long the borrower stays with the lender. Assuming the loan only lasts 5 years and the broker charges the client a $3000 fee, the client saves $1375 but the broker is worse off $1,000. As the term increases, the broker is even worse off.

The idea has some merit but I doubt it will take off. The client will only do it if the interest rate offered by say Vanilla will benefit him compared to other lenders.

This is just another marketing gimmick that could back fire if down the track the client is worse off if the lender increases their rates above the competition. Just look at what GE Money did. Clients are now paying at least 2.5% more than the majors.

The more you look into it the more it "stinks"

Commented by: Martin Castilla at 02 Jun 2009 05:29 PM

"..rather than pay brokers directly, the lender will "support brokers to charge fees to clients and assist them to collect the fees"." Are you serious, expecting a broker to ask a client for $3k app fee quoted above? Do I read that right? If so, clients will consult a broker for 'the best deal' then by-pass that broker and go direct to the bank, where they'll waive fees and approve in half the time. Ahh...... wait a minute... I get it.....

Commented by: Robbie Tabet at 02 Jun 2009 05:42 PM

Does Vanilla Loans even have a wesbite??? Or is this a publicity stunt, with a failed attempt I should say, to promote their new business venture?

Clients complain about bank application fees of $300, let alone a brokerage fee of 1%.

Good try guys....seems like you are just amateurs in the market. You are better off selling vanilla ice cream.

In any case, you will be eliminated from the market as quickly as Vanilla Ice vanished.

Commented by: Jim at 02 Jun 2009 05:42 PM
This really sounds like a shite idea and I agree with Martin all it will do is get clients to shop us around to reduce fees. I would rather go to firstmac direct!!!!

Commented by: Vegas Broker at 02 Jun 2009 05:44 PM

3,000 upfront broker fee + 1200 in upfront lender fees and prob 1% DEF for 5 years. Whichever way you you look at it, doesnt work against 4.99% no app no ongoing with 1000 DEF first 3 years from St George. everyone else is around that mark as well. Not to mention what happens when you want to restructure something with it. Cant be priced sharp enough when you look at RMBS cost of funds, LMI etc etc.

Commented by: Hankster at 02 Jun 2009 05:45 PM
Why dont we all just do the loans for free and provide the big 4 with no competiton. I am still amazed when you callout a tradesman he charges you a consulting fee, then for the job at hand......we are not allowed ... no wonder our industry is falling apart when dropkicks like vanilla, refund Homneloans and others.. time to dabble in the share idustry to make a dollar!!!!!!!

Commented by: ashley at 02 Jun 2009 05:47 PM
I thought that borroweres dont pay extra to go to a broker, they would be payin the same rate if the go the bank direct? is that correct

Commented by: JB at 02 Jun 2009 06:13 PM
A broker adds value to the business by building trail. No trail, no value. This offering therefore has no value to brokers. Go back to your mortgage reduction software Geoff, you'll sell more of those, no doubt.

Commented by: Brett at 02 Jun 2009 06:18 PM
I have had a few deals declined only for my clients to be called direct by the bank and offer a better deal same structure as was declined. No banks dont offer the same deals to direct clients and they offer brokers to sell. If we start charging upfront fees watch the bank lower their rates and not charge brokerage!

Commented by: newby at 02 Jun 2009 06:42 PM
How about a model where brokers charge an upfront fee and then offers the client a rebate based on the amount the lender is willing to pay (i.e.our current commision). That way the broker gets his due and the lender must compete for business. Just a thought.

Commented by: Ian at 02 Jun 2009 07:54 PM
Is that the same Geoff Breiger that used to run Greater freedom?

Commented by: John C at 02 Jun 2009 09:29 PM

What most brokers have not realised, is that is exactly we are heading, back to a fee based service from 15 years ago. As the banks squeeze upfronts back to 0.6% and then even lower, how can a broker run and market his/her business let alone survive. The banks encourage cross-selling other related financial products to supplement this drop in income. Com'on guys open your eyes and have a really good look where this could end up. What's the bet that there will be no trail commission being paid after 2010......The writing's on the wall, so wake up fella's, look at your options, instead of trying to dream that the current model will stay in place. The banks don't want brokers, and they are playing the game for all they are worth using the financial crisis as the catalyst for change. That's my opinion anyway. Just take your blinkers off and have a really good look around. We are the only country in the world where mortgage brokers are still paid trail commission. Don't worry, that won't last for very long. So take you heads out of the sand and have another good hard look where this industry is really going.

Commented by: Big Fella at 02 Jun 2009 09:55 PM

It annoys me that brokers whinge like hell about the banks and their service standards, yet on these comment pages when a new idea is raised all everyone states is that nothing compares to the banks products in terms of price and fees.

If you don't like a new idea then thats fine - stick with the banks and put up with the service they provide. Whether we believe it will be a success or not is irrelevant as at least someone is trying something different which in the current climate is a refreshing change.

If I see another comment about how good the banks products are when I have read nothing but people (some from the same people!) complaining for the last 6 months about the banks then I have to say (using a slight change to a once famous quote from Paul Keating) 'The average broker just isn't that smart'

Commented by: Rodders at 03 Jun 2009 10:19 AM

I agree with John C and The Big Fella. If you are truly broking and are planning to still be in business then you need to be placing your business with anyone other than the big 4 banks. do you still believe the BS from the big four saying we are "business partners" and "we are committed to the broker channel". If my business partner behaved the way Big 4 have, I would have him court quick smart.Good on you Vanilla for trying something to break the control of the big 4.
Broking was always a fee for service until the banks introduced commissions as way to control us, Look at accountants, solicitors or doctors, you are charged by the minute,but if someone suggests we charge a fee all hell breaks lose. By the amount of business you guys are still giving the Banks i have to agree with Paul Keating you guys just aren't that smart.

Commented by: James Veigli at 03 Jun 2009 11:09 AM

Here's the problem and solution!

The fact that brokers are paid commissions by the Big Banks, means we are, in the clients mind, "in bed with them"... hence why brokers continue to struggle in the community - being seen as "snake oil salesmen" just chasing another commission!

In my view, brokers must start charging fees for service, because this way we become PROFESSIONALS and not COMMISSION CHASERS.

This can be done in many different ways. One option is to have a "standard consulting fee" for mortgage broking - say 1% of the loan amount. Charge this to the borrower and then refund them any commissions you earn from the lender. Fully transparent.

Amateur brokers will read this and think: "I can't charge an upfront fee, nobody will pay it, they will just drain me for information and then go to another broker or direct to the bank".

Sure, many brokers are scared of charging fees, because they have been taught (incorrectly) that they should give away their time and work for free... in the hope that the loan settles and they make a commission (which is at the mercy of the banks!).

I don't know about you, but I wouldn't trust my income to a major institution for a second. And I NEVER work for free!

Don't be scared of charging for your time and service. If you study and understand human psychology, you'll discover that people RARELY buy on price... and the broker who charges more for his/her time, is in fact the busiest and most sought after broker in town.

Once brokers GET THIS, nobody will give a stuff about bank's lowering commissions or taking away trail.

I don't know anything about this Vanilla Loans mob, but at least they are being creative and proposing a solution to the very problems brokers whinge about in these forums (yet they get cut down immediately for doing so).

How about you choose to support and embrace creative change for once... rather than shooting bullets at those who bring it.

I'm starting to think many brokers out there actually like being taken advantage of by the banks, working too hard and having their income cut back?

I, for one, am doing something to fight back.

James Veigli
Australia's Millionaire Lifestyle Broker Trainer
& Performance Mentor

For FREE information, check out:

www.PowerBrokerSecrets.com

Commented by: tba at 03 Jun 2009 12:04 PM

as the article states, Firstmac is one of the funders for the product.

most likely, the borrower is charged a lower interest rate... probably the delivery rate and whatever Vanilla make as well.

the interest rate will not be 0.60% cheaper (as there is no upfront payment), as funders charge a smaller percentage for an upfront. eg. 0.25% loading for 1.00% upfront. hence the reason for the DERF. if a borrower refinances within 3 years, then the lender is not recouping thier upfront fee, which is why they charge the DERF.

Commented by: JB at 03 Jun 2009 02:31 PM
Geoff obviously hasen't done his home work on this hes playing into the hand of the major banks The banks cut commission last year. Did they pass it on to the client? I dont think so Clients will still pay the same rates plus now Geoff expects them to pay an up front Fee Im lost for words

Commented by: Justin R at 03 Jun 2009 03:21 PM
Hi James Veigli - Hope you are well.

Commented by: GeeL at 03 Jun 2009 07:46 PM

I charge an upfront fee as well as commission. the client signs an upfront Engagement Authority with my commissions declared. As long as you give superior service, the client remains happy. As long as they know up front what to expect and you offer a refund if their expectations are not met, and deliver on your promises, they are happy to pay. Put value on your service and earn enough to do the job 100% properly.

Commented by: Old Timer at 03 Jun 2009 09:59 PM

Charging a fee is easy. You just add the fee to the loan amount. You need to start getting your Aggregators to lobby for a streamlined disbursement process.

You know you going to charge a fee sooner or later, as the non-bank sector is dead. They were the pioneers that got you your commissions, your low docs, etc.

I have been doing broking for over 15 years and I recon half of you arnt gunna make it.

Commented by: Geoff Brieger at 08 Jun 2009 01:58 PM

Thanks for the hate mail and reasonable objections, but my heartfelt gratitude goes to the intelligent supporters of the true broker model - you are inspiring!

Any person considering a career as a mortgage broker would have to be horrified when faced with the existing system whereby lenders dictate what you earn and write all the rules around you earning it.

As a broker, wouldn’t you rather represent your clients, because you’ll never be seen to do so whilst you accept payments from lenders. To suggest otherwise is a load of bollocks - to lend a phrase from one of my anonymous detractors.

And as for the conspiracy theories that put me in bed with the big 4, well I don’t mind if the big 4 refuse to play in the “True Broker” space, because non-bank lenders like Vanilla Loans will become unbeatable without them as competitors.

And if they don’t come to the party, why wouldn’t you go straight to a branch with an authority to act for your clients. From what I’m hearing, you might get better service from the branch lender than the third-party channel?

To gain the control you so desperately want, you’ll have to let go of the old system. If you are happy working under the existing model - good luck; but you’ll soon face a new breed of brokers that offer a far better value proposition to borrowers than you do.

The only way out of the current lender model is to break volume hand-cuffs, kiss the rules of clawback goodbye; and start negotiating better deals for your clients - surely that’s what a true mortgage broker should do?

Hey mortgage brokers - Vanilla really does like you!

Cheers,
Geoff Brieger
gb@vanillaloans.com.au

Commented by: Geoff Is Delusional at 08 Jun 2009 07:13 PM
For your benefit Geoff I have listed the number of loans u will write under your model. It is Zilch, Zer, Zought, Nil, Jack

Commented by: Oz Boy at 09 Jun 2009 09:23 AM

We are paid a commission by the banks for introducing a new customer to them and by completing the necessary paperwork so as to minimise the cost to the bank. We charge our clients for our advice, a seperate fee than what is paid by the lender. In your case there would be no fee from you so we could pass this on to the client. We would then do the sums and if it was better for our client we would not hesitate to recommend your product but if it wasn't then we couldn't. Your pricing and service will need to be at the pointy end. Good luck.

Commented by: PMP at 23 Jun 2009 07:48 AM

Vanilla has a good idea but it already exists with Non Bank lenders that are in the market and not only that have grown as businesses over the last 18 months. We offer you the choice to reduce our rates and charge a fee for service or leave our rates as published and receive a commission from PMP, we have done this for several years, having been working closely with several large financial planning groups. For example if you want to take out the upfront and trail. Reduce our Evolution Pro Pack from 4.99% (which pays 0.6% upfront and 0.15% trail) to 4.64%. The choice is yours.

I dont think the issue here is with the Vanilla model, but brokers ability to look for alternatives which provide their clients with better products, by far better service, 5 day unconditional approvals and the ability for the broker to keep their client long term.

Old Timers comments about the non bank sector being dead is so far from the truth. This is a comment from someone who obviously writes nothing other than the banks. Possibly an Ex-bank employee and the expectation should be that banks will continue to seek to increase their margins back to what they were pre-non bank lender times at the expense of broker commissions. NZ should be a good example of where broker commissions are heading with the big 4. 0.40% upfront, no trail.

Non banks and Mortgage Managers will continue to innovate and come up with better ways to work with Mortgage Advisers as well as offering a broader range of financial services products which you can cross sell but you dont have to. This is the world as it is now. If you dont use a Mortgage Manager you should, if you haven't tried writing a loan for your client with a mortgage manager now is the time. If you really want to let banks know what you think, let them know with the only thing they understand take market share and put it with the non banks/mortgage managers.

Commented by: Ridha at 30 Jun 2009 03:53 PM

Let the brokers run their business and the lenders to mind their own business,

the lenders have spitted the clients before but now they are trying to get them back but if it was not for the brokers lenders won't be able to pay their bills.

so lenders and bureaucrats keep a way from brokers they are doing an exlent job and they have to pay for their bills too,

i have been in business for 20 years and i have not seeing it as bad as this, so please give the brokers a break

Commented by: Broker in the burbs at 08 Sep 2009 09:11 AM

I think that James Veigli has the core business rationale behind 'ownership' of fees & a sense of independence from product manufacturers as being 'on the money'.

I also don't give away my service for free. My value proposition is relatively unique and I have the option to charge for it in conjunction with receiving commissions.

It's all fully disclosed and much as James states, what I offer is not tied up with price.

The valid argument from many brokers here though is that Vanilla's core offer doesn't stack up. The examples used (both quantitatively & qualitatively) by Geoff do not stand up to reasonable scrutiny.

Brokers in the main, do not like being accused of being lackies for product manufactuers, nor are they particularly friendly to businesses like Vanilla that hold brokers out as agents of the banks or having bias.

It's been my experience (& I've been in the FS industry for over 30 years) that garden variety brokers endeavour to represent their clients in the most professional and unbiased manner as possible.

If brokers are supposedly seen by the general public as supposed 'snake oil salesmen', why then do brokers continually secure a greater market share of business over the years with the vast majority, anecdotally look forward to the national licencing regime to validate that professionalism.

Brokers want to be seen as being professional and in the vast majority of instances they are. When groups such as Vanilla, drag down the broker offer in the eyes of the general public, to simply promote their own flawed USP, then they shouldn't be surprised lo be challenged from within the industry.

Oh, and if aggregators historically appointed mortgage salespeople with limited knowledge and training and compliance was practically ignored, and then let them loose on the general public, then who's fault is that.

Brokers, what ever you do, don't diminish your broker value proposition, and where possible, learn to 'own your income' not to simply rent it.

The two pillars and the two stumps do want to minimise their expenditure (paying commissions to brokers) and they also want to own or control the broker channel.

But as your 'value' to lenders reduces, your value to borrowers is not diminished. Take your commissions and charge for your time.

Most professions do you know!

Broker in the burbs

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