Vanilla Loans: Batman vs The Joker

By Larry Schlesinger | 22 Jun 2009

Fee-for-service mortgage manager, Vanilla Loans, is certain to divide broker opinion once again following the launch of its website which suggests that brokers that chase commission are "jokers"

The home page - http://www.vanillaloans.com.au/pro/index.html - is dominated by two images - a picture of Batman to represent the 'true broker' - one who charges a fee - and the 'commission chaser' represented by batman's nemesis, 'The Joker'.

According to the website "true brokers oppose the 'lender commission' model because they view payments by lenders as a conflict of interest.

"They refuse to accept sales commission from lenders and opt to charge customers a fee for the service of negotiating a better deal - surely that's what a mortgage broker should do if it is legitimately acting for its customers.

Further on it says "...true brokers are unadulterated professionals, rewarded with self-respect, freedom and control".

The mortgage manager has launched with an introductory rate of 5.19% on its line of credit, term and offset mortgage products and recommends a brokerage fee of between 1% and 1.5% of the loan amount.

Geoff Brieger, the man behind the concept,called on brokers "to come and take a look, get accredited or even look at joining the retail team".

Brieger said the consumer-facing retail website will go live on 1 September.

Related stories:

Mortgage manager opts for fee-for-service model - 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.

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Commented by: Hak at 22 Jun 2009 10:03 PM
So basically this guy wants brokers to write business for them, pay them nothing and keep whatever the income is and force them to charge their own clients. Great system. Crooks.

Commented by: something different at 22 Jun 2009 11:39 PM

Hak, I think the idea is that Vanilla operates as a mortgage manager, and sells a rate without any loading. Rather than loading the rate by say 25 basis points to cover trail, they charge 1-1.5% upfront and deliver what should in theory be a discounted rate. I guess at an average of 0.5% upfront and 0.15%-25% trail, its equal to 4-7 years of accelerated upfront income. It would probably be difficult for most brokers with no mortgage management knowledge to understand, as they are used to placing orders with banks and collecting a smaller upfront and trail payments for doing so. Then they can effectively wipe their hands of the deal and move on to the next deal. I can understand how at first glance they would fail to see value in this. But your objections assume that current levels of commission will continue, and that banks wont take further advantage of market share to increase rates again, outside RBA. Both are dangerous and shortsighted assumptions. Also keep in mind that mortgage managers have far greater costs to run their business than brokers do. They actually do all the credit, post settlement, collections etc. In spite of all the rhetoric, not sure that too many brokers do anything even close to resembling after sales service...but that's another story altogether. Anyway, the bottom line is that its not a terrible idea, necessarily.However,all things being equal, it can probably only really get any traction if Vanilla can source funding from originators/non banks at slightly more competitive rates (say 25- 30 bpts less than a major), because then it would make very good sense over 5 years, for example. 5.19% isn't quite there. If they had a deal at 4.80-4.90% range for example, with a one off 1 - 1.5% brokerage fee, no ongoing fees, and they provide all the post settlement care for customers, I would think that's a pretty damn good deal for a customer. On a 250K loan that couldnt get a top pro pack discount, a one off $2500 fee and 4.9% over 30 years would be a pretty exceptional deal. Everyone always seems to forget just how much the little $8/month or $350-395 annual fee adds up to with major banks over 15, 20, even 30 years. Look at the whole picture is all I'm saying, but only if Vanilla can get down by about 20 more basis points or so..

Commented by: Bob D Broker at 23 Jun 2009 01:01 AM
My approach is to get the clients a fully featured loan with a great rate with no brokerage fees. So what chance has BATMAN got with his one scoop overpriced vanilla when SUPERMAN has a three scoops with fudge topping, nuts and a cherry on top.

Commented by: Keen at 23 Jun 2009 07:28 AM
Just checked it out - quite good and funny too. All the product specs are there also. I think the rate is good for customers who can't get a full discount on a propack. The comparison rate is 5.19%.

Commented by: Graeme Kluck at 23 Jun 2009 08:00 AM

Why charge the customer a far higher fee ( say at the suggested 1%-1.5% of the loan amount) when there is a lesser fee paid to brokers by the lenders at no cost to the customer. Charging the customer only increases the cost of funding to the customer and this is not logical when there are equally competitive rates in the market.

If brokers think that lenders will reduce rates if commissions are not paid to brokers then they are living on a different planet.

Charging the customer to the extent indicated is not a valid approach in my view.

Commented by: plucka at 23 Jun 2009 09:10 AM

Does the comparison includes the brokerage fee?

Common without a trailing commission, what guarantees te broker will look after the customer moving forward after he receives his commission?

Banks at the moment are offering a more competitive rate and also paying commission with the conveniences of Branch Networks and stability.

We all know what happened to mortgage manager in the past couple of years...

GOOD LUCK FATMAN!

Commented by: Cameron at 23 Jun 2009 09:18 AM

I couldnt agree more with what Geoff is doing. This industry is going down the road of the Financial Planning where in a short amount of time there will be no commission paid by the funders. When you look at the rates on offer on the web there are better options out there than what is on offer through aggregators and they dont pay commissions to brokers. Why not charge the client a fee and get them the best deal in the country for it. Professional brokers will survive and good luck to the ones that are just puppets to their aggregators software.

Commented by: Steven Fin at 23 Jun 2009 10:01 AM

fee for service, WAKE UP. Planners have been arguing this scenario for years and still can't agree simply because it doesn't work for the majority of customers ie your average mum and dad client. Reality is clients usually want everything for nothing. so what makes you think they will pay you 1% to 1.5% as a fee for service when they can get a better deal by walking into another brokers office at no cost.
love to see their faces when they read the broker agreement and your trying to sting them for a $4,500 fee for a $300,000 loan.
keep dreaming.

Commented by: Speculator at 23 Jun 2009 12:33 PM
Does he have permission to use the images of Batman, The Joker and the Ab Fab girls? It's a serious breach of copyright if not.

Commented by: Riddler at 23 Jun 2009 12:54 PM

Geoff, i really would expect more common sense from you.

Riddle me this: Why would a customer pay 1% or more fee to a broker to get a loan at a moderate rate of 5.19% when the customer can go to another broker, pay no fee and get 4.82%.
If you are going to be no-frills, your rate has to be market leading.

With this model you are just pocketing the commish...does that make you a joker?

Vanilla looks a little bland...

Commented by: James Santo at 23 Jun 2009 01:18 PM
I think the idea is good but you havent rebated the sacirfices back to the borrower. The 5.10 should be under 5% allowing for rate reduction through no upfront and trail. It looks like you are pocketing upfron and trail. Not paying th ebrokers anything - then asking the borrower to pay the broker. This is deceptive ocnduct at its worst. An utter disgrace. You should be barred from practicing

Commented by: Arthur at 23 Jun 2009 01:49 PM

For this to work the borrower must be at least getting a better rate than they can get anywhere else eithyer broker or bank branch and then the "betterness" of the rate must be guaranteed for an extended period of time. What if they end up with another GE and rate reductions are not passed on or increases are higher than the market average. The borrower might get a better rate initially but then what.

Commented by: Long-term memory at 23 Jun 2009 01:50 PM
Im just curious, but is this the same Geoff Brieger that used to run Greater Freedom?

Commented by: Vanilla or fudge? at 23 Jun 2009 01:55 PM

Vanilla Loans is a Mortgage Manager - yes? and which ever Lender they are using does not have a base rate of 5.19% - there are commissions loaded in this rate. Someone is slicing the vanilla and keeping the upfront and trail from the Lender and then keeping 50% of the 1% - 1.5% they are charging the customer.. Clients and brokers can see this in their Mortgage docs!! If the Lender you are using is passing on a base rate of 5.19% without comms then it is time to get a new one!!

Commented by: Positive Broker at 23 Jun 2009 01:59 PM
The idea has a lot of merit IF the customer is getting a much better rate than they do under a commission model. As Steve Fin says, why would a customer pay $4500 for a $300,000 loan at 5.19% when they can bet a better product / rate at no cost to them. Let's not forget why we are all here: TO GET THE BEST DEAL FOR OUR CUSOMERS (NOT OURSELVES).

Commented by: jb at 23 Jun 2009 01:59 PM
There are better rates out there than 5.19%pa and you get paid upfronts and trails Try ING, 5.09%pa no ongoing fees or over 300K 5.03%pa who's this guy kidding

Commented by: Geoff's Accountant at 23 Jun 2009 02:07 PM
Geoff, I hope you haven't invested your own money in this venture.

Commented by: Louis at 23 Jun 2009 02:15 PM
That's a good start by calling brokers (the majority)jokers. I'm sure this will get their support.

Commented by: oldBroker at 23 Jun 2009 02:32 PM
Based on my software, there are 11 mainstream lenders that have a better comparison rate than 5.19%.

Commented by: oldBroker at 23 Jun 2009 02:36 PM
If I was a smart client I would also negotiate a clawback, so I will pay my (say) $4,500 but if I refinance/discharge within a certain period, then I will get some money back, OR the broker can pay the DEF.

Commented by: Xerxes at 23 Jun 2009 02:40 PM

Why is it that banks, building societies, mortgage managers & other non banks are able to sell customers a loan and they earn a margin on the money & this is OK?

But brokers, well they are evil jokers chasing a profit when they earn a margin.

In virtually no industry in the country do I know what margin the seller makes when he sells me something. But brokers, well these evil creatures must disclose everything (using the same logic, why shouldn't lenders be required to disclose profit margins on a loan interest rate?).

Vanilla, you might have some credibility if you were selling your loans at 4.6% (or whatever your cost of funds) & charging your own funder fees direct to the customers. You seem to have one standard for yourself and another far tougher one for brokers.

Commented by: analyst at 23 Jun 2009 02:46 PM
i wonder if the motive here is for the organisation to push this tracker program they rave about and get kickbacks? the numbers certainly dont stack up!

Commented by: BBB at 23 Jun 2009 03:45 PM

I have a problem here, if the client does not pay us a fee for our service and still pay the same application fees as Mr Vanilla Ice creams clients and also we are paid a trailer from the rates margin of the bank and the clients are still paying the same discount rate that tehy would have if they had walked into a branch , and they want the personalised services I provide,

Plus I fully inform them that I am receiving an up front and trailer and they can come and see me AT NO COST AT ANY TIME please Mr Ice cream tell me how your clients are better off paying you a fee to what I do for NO COST TO THEM and you presumably charge a fee evertime they see you.
UNLIKE the financial advice industry the trailers are not paid out of the earnings/fees that the client earns at a real cost to them . Mr Ice cream you do not seem to understand this , I hope yopu go broke , you deserve to.

Commented by: Geoff fron Vanilla at 23 Jun 2009 03:58 PM

To those who seem to get it – fantastic! To those who don’t – that’s fine too.

If you’re insulted by the fact that we are fundamentally opposed to the lender commission model – sorry for challenging your cosy state of mind. Cling to the commission system and don’t become a “fee for service” broker – no problem.

But do take a moment to imagine a “fee for service” model with all lenders in the game - lenders who can do better than Vanilla’s prices (as you’ve told me!) Imagine better rates for customers, better fees for brokers and dare I say it; better margins for lenders. Imagine a broker channel that is the cheapest for customers, cheaper than the existing broker channel and cheaper than the bank branch channel. I believe it can be done and done ethically.

For the record, Vanilla Loans is not trying to compete with loss-leader products (where there is no discount to get) and Vanilla is not claiming to be the cheapest – just 0.3% cheaper than we could be if broker commission was factored.

I keep hearing that 85% of broker business is going to major banks. Our research suggests that Vanilla Loans is very competitive with major bank loans in a certain range. So when you start talking price, make sure you compare apples for apples and consider that Suite Vanilla offers fully transactional loans with no annual fees, great rates and fantastic post-sale extras.

Just a couple more things: -
• I offer no apology for trying to earn modest margins which are explained at http://www.vanillaloans.com.au/pro/qa.html for anyone who cares to research the matter – and you said we’d never tell!
• Today, I have received several requests for accreditation with Vanilla Loans and our first agreement has been executed.

We’re here to stay - not sorry!

Commented by: Timbo2 at 23 Jun 2009 04:00 PM

Why wouldn't a customer just walk into a bank branch and walk out with a loan, and pay nothing? Until we have a unique service that only a broker's skill set can provide, or bank branches no longer do loans, this is simply not an option. In fact the mere floating this silly idea in the public arena risks us all being cast as rip-off merchants.
Also how do first home buyers pay this fee when they are now struggling with 10% deposit? It's so stupid I think it must be a gee-up.

Commented by: Riddler at 23 Jun 2009 04:09 PM

Thanks for the dignified response Geoff.

But....
Okay, here's an example. Today i got an email form AFM offering a basic variable: no app fee, no val for 5.24% CPR 5.25%. Only .05% different to Vanilla.
But this factors in a full upfront and trail payment structure. And guess what? I can still charge an upfront if i like (and don't need to share it.)

I don't oppose your model in principle. I hardly use the big four and good on you for offering a non-bank alternative. But you have the numbers wrong.
You should be well under 5% to have anything to justify the additional cost to client.

Go back and try again.

Commented by: PC at 23 Jun 2009 04:11 PM
If there were a "fee for service" model with all lenders in the game, as you ask us to imagine, then there would be no Brokers as all clients would go to the lenders branch or get one of the mobile lenders out to see them, and still get the loan at no cost to them for the service.

Commented by: Old timer at 23 Jun 2009 06:12 PM

You are all wrong, you can charge a 2% brokerage and do a better deal for your customers.

For example - a loan I did today - notice 2% brokerage added to HSBC principal:
CBA 3 year fixed $350K @ 6.69% P&I over 30yrs = $2,256.19
HSBC 3 year fixed $357K @ 6.09% P&I over 30yrs = $2,161.10

BINGO! There are heaps of examples, this is one I did today beating the customers bank, CBA. Plus I submitted the loan (with the customer) in the branch and got it approved today - same day.

Guys you need to broker loans like everyone did in the early 90s. The days of banks buying business is over. You need to add the brokerage onto the loan principal, so that we can get paid more than a couple of bits. Your all obviously new comers - youre a joke.

When your good can can easily charge 2.0% per loan. Real Estate Agents get 2% and they do a lot less than we do.

Commented by: Enlightened at 23 Jun 2009 06:15 PM
Wow, Old Timer is right and you dont have to put up with this 3rd party poor service, or pay aggregators. AWESOME STUFF OLD TIMER I THINK LOVE YOU!

Commented by: OzziSlave at 23 Jun 2009 06:26 PM

While I see its different but it may hurt borrowers that we refinance after 3 years. But we could easily adapt by not refinancing them. Based on what Old Timer has shown I would only need to do 2 to 3 loans a month and it would be easier.

I am sick of giving money to MFAA, Aggreagtors and dealing with poor service I am going to look into this more.

Old Timer can you give us you details to get more information on how you did it in the 90s?

Yours, OzziSlave

Commented by: Xerxes at 23 Jun 2009 06:58 PM

Any moron can jump onto cannex and see who has the best 3 year fixed rate. We live in the age of information. The average Joe can very easily find the cannex page or another rate comparison page.

As brokers you should not simply sell on price. It would be wrong to say price doesn't matter. For mine however as long as the price is reasonable then service & credit related issues as well as product suitability are more critical. A brokers knowledge & expertise extends way beyond price. Add value to your customer using your experience & knowledge don't go down the fee for service path in residential lending.

Read between the lines. There is an agenda being pushed. Fee for service in standard residential lending is code for 'destroy the broking industry & reduce competition (push customers through banking direct chanels)'. Don't be fooled. Anyone who is pushing fee for service in the residential loan industry is probably not a broker but a lender. Just because someone writes a coment on this page claiming to be a broker doesn't mean they are.

Fee for service means the death of broking as a main stream service. It will assign broking to a fringe industry (as it was in the early 90's) servicing the needs of difficult to place deals or a particular type of client (but not the main stream client base that now use us). Back in the early 90's almost nobody used brokers. Now we are 40% of the market.

All true brokers need to oppose fee for service in residential lending. Bad for brokers, bad for customers, good for lenders. Given this - who do you think is pushing fee for service?? Wake up...

Commented by: Patrick at 23 Jun 2009 08:43 PM

I was a broker with Centrelease in the late 80s. We were the largest broking company in Australia.
I still do most of my loans as fee for service and I refund any brokerage, if it is paid.
It is a better method as you can do a lot more types of loans e.g. under 2 years self-employed with only a contract OR HIGH NET WORTH BORROWERS WITH PRIVATE BANKS.
The only problem is HLTV loans for first home buyers. Most of mine are referred by their parents, so I usually get their parents to add security. Otherwise I access bank pays broker channels.I only use bank pays broker channels rarely.
Broker pay channels were a lot of fun in the mid-90s = we got paid by the borrower and the lender! Now you cant do it.
Old Timer is right and you are going to need to listen to us old timers when the time comes!
Rgs
Pat.

PS Trail was not paid because you service the client. Trail is a way to pay a ratio of the interest margin without the lender taking on excessive prepayment risk.

Commented by: Tom at 23 Jun 2009 10:37 PM

Food for thought there old timer. HSBC no longer participate in the broker market so what you are saying is charge the client (justifiable if your are providing a service and cheaper overall deal) and then just arrange loan direct with the bank?

I am sure everyone agrees, we are all sick of banks screwing us over and sick of aggregators getting paid for nothing.

But where do you cheaper funding than the majors...how
about you old timers share a bit of your wisdom with us newbies (instead of knocking us)

It's time for Brokers to before we all perish!!!!!

Commented by: Old Timer at 23 Jun 2009 11:40 PM

Example - a loan I did today - notice 2% brokerage added to HSBC principal:
CBA 3 year fixed $350K @ 6.69% P&I over 30yrs = $2,256.19
HSBC 3 year fixed $357K @ 6.09% P&I over 30yrs = $2,161.10

You sell a better deal by adding your fee to the loan principal. The basic steps on this deal were:
- Customer banks with CBA and wants to fix the rate.
- He ends up selecting 3 years fixed during the long consultation. We talk economics and wholesale markets.
- I show them their CBAs 3 year fix rate is 6.69% and the 30yr P&I payment is $2,256.19. We talk about their overall experience and we establish they are willing to leave CBA for a better deal.
- I then give them my best rate (I already know all the best rates and what shortcut services are available from different branches around Sydney e.g. turnaround times, no vals, who waives fees toward the end of the month, who does self-employed under 1 year, best place for their stock broking, etc...)
- In this example, I recommended a rate from my HSBC premier banker = 3 year fixed $357K @ 6.09% P&I over 30yrs = $2,161.10. In some cases I can get my clients a further 0.30% discount, down to 5.79%, not always but 50/50. I have to call my contact to get it.
- I advise my fee is already included in the monthly repayment, which is $90 pm less than CBA.
- Notice the $7K additional principal in the above point. That’s my fee.
- A few other steps go here but these relate the structuring, other choices, etc and are not included in this example.
- I have a lot of disclosure documentation which I have created over the years.
- I put the complete deal together. I go with them to the branch to assist with questions and reminding them in the morning what docs they will need when I pick them up, to take them to the branch. With High Net Worth borrowers I introduce them to State Managers of Private Banks over lunch etc. The private bankers always pay for lunch.
- In the end I only need to do 2 loans a month as my average loan amount is $480K at 2% fee. I could do more but I am semi retired and only look after the clients that I like.
-My clients are/were always happy because even if they were paying my fee, on their loan statement it says 5.79% and your clients say 6.69%. This is what they tell their mates = best rates. Better still I pay nothing to an aggregator, I dont need to be a member of MFAA, I dont need to pay COSL, other fees, I get heaps of kick backs from the banks e.g. 1.00% discount on my loan and no fees. I get the royal treatment from all my bankers. I only call my bankers mobile, which they always answer.

I give a much better customer experience. Mine clients love me. Yours get internally refinanced (the bankers even joke about how they do this). I get heaps of referrals. Now I just give them to a young broker who I mentor.

Do you guys want to know more?

Commented by: 90s old school broker at 24 Jun 2009 10:11 AM

I used to do broking like that in the mid 90s. The trick is in the disbursements. I used to get a letter from the borrower to attend the settlement and pick up my brokerage. Otherwise I sent them a bill. I always got paid.

Old Timer is right and you end up providing a much better service than the average broker does today. The main reason is in addition to knowing the basic policies, you need to have good contacts and know all the tricks around the market eg who has a delegation and wants to buy business.

The UK and US markets already have a larger proportion of fee for service brokers and it works well.

The only ones that need to really fear about fee for service is the aggregators and banks. If your not being paid by the banks you dont need to be accreditted.

Think about that.

Commented by: William Duffy at 24 Jun 2009 10:38 AM
Old timer, I certainly would like to know more - please advise us / help us, as we can assist borrowers, as you have

Commented by: Voldemort at 24 Jun 2009 10:50 AM

Firstly - to establish credibility. in 1991 I was a home loans officer for a bank. Monday mornings our local broker would come by and drop off 3 to 7 home loan applications, which i had to process.
So i have seen the industry evolve from a broker function of simply writing up there application, handing to a local branch then waiting for the commish, to a process where the broker follows up the application from enquiry to settlement and beyond.
I am now a broker with a WA licence, MFAA AMC and COSL. I find the best dea for my clients and charge a fee to the client only when it is a complex transaction or non-conforming. So i have no problem with fee for service in principle - just that for straight forward deals, we can get a cheaper rate from lenders than Vanilla and not charge a fee because those other flavoured lenders pay a commission.

What worried me with a couple of the previous posters is that in times of high accountability and compliance they are boasting of not being a member of COSL, MFAA or an aggregator - all of whom require demonstration of capacity and accountability with a high degree of rigour.

Seeing a punter, introducing them to a bank manager, sitting back and waiting for a fee to be paid by that customer may indeed be more in line with the general broad defintion of a 'broker', but what recourse does the customer have if they have problems.

By not needing to be accredited we go back to the days of anyone hanging a shingle and pimping customers to banks with no need to demonstrate ethical standards and experience and training.

Yes..... i want to know more.

Commented by: Tom at 24 Jun 2009 11:43 AM

Thanks old timer...pure gold. There will always be individuals not prepared to look outside the box. This is why greedy banks and aggregators are getting away with screwing us over. They want their cake and eat it too. I for one have had a gut full of the majors dictating the commissions and dishing out shoddy service with a take it or leave it attitude. Major banks will always be arrogant.

I think a good mix would be have alternative non-panel lenders on side and give the customer the option. Competition is the only way to keep everyone honest. Brokers don't sell yourself short...we work hard for our money and it's time to unite.

Old timer if you are willing to share your pearls of wisdom perhaps we can do this in another forum somewhere away from the knockers.

Commented by: Old Broka at 24 Jun 2009 12:03 PM

Lets look at the numbers from the clients perspective.

Remember at the end of 3 years, the curent financier may not have the best deal, which could mean clients have to re - finance agin.

So the savings of $95 per month for the fixed term (36 months) is $3,420.

On the CBA loan of $350K over 30 yrs @ 6.69%, the balance outstanding at the end of year is $337,881

On old timers loan of $357K over 30 yrs @ 6.09%, the balance at the end of year is $343,240 ($5,359 more than the above CBA loan)

So, based on the above.

* Clients were charged $7,000 upfront added as principal to the loan (negative)

* Saved $3,420 ($95 p.m @ 36 months) on the initial fixed term) (positive) yet

* At the end of the fixed term, the balance on old timers loan would be $5,359 higher.

So, in summary, the clients would be $8,939 worse off
with old timers deal (fee of $7,000 + loan balance $5,359
higher, less repayment savings of $3,420)

If old timer dislcosed this - why would clients go with this deal?

Commented by: Tom at 24 Jun 2009 01:04 PM

What should have been suggested to client is pay the same monthly repayments as the CBA loan ie: $2256 per month. This way they take full advantage of the cheaper interest rate savings. Old broka do the sums with those figures. Just looking at HSBC website their variable rate now is same as CBA (who knows what anyones rates will be in 3 years time) so at the end of the 3 year term deal will be comparable. In fact they have a pro pack equivalent which is 0.05% cheaper than CBA's pro pack variable rate for a fee of only $240pa. Also offer a 0.1% discount on the 3 year fixed term under the same package.

What old timer is saying is shop around for the best deal. I think 2% commission is a bit over the top but good luck if you can get it justifiably.

Ps: Just announced the majors banks want to extort re-accreditation fees out of us now with CBA leading the way.

Commented by: ancient broka at 24 Jun 2009 01:21 PM

There are alot of if's, but's maybe's, but who has EVER got a loan that's ALWAYS the best deal, anyway? CBA customers had the "best" pro pack rate until last week. I agree that 2% is a bit heavy though. Something like 1.25% would be fairer.$1 million a month would make you 12,500. If you can save a customer 0.3%-0.4% or more over 4 or 5 years it would pay for itself and then some. There would me plenty of merit in that I would think. Especially if you look at what you earn writing a major loan over 5 years. Roughly 1.25% including upfront and trail for 5 years, minus your aggregators split.

Commented by: 90s Old School Broker at 24 Jun 2009 01:28 PM

You missed the earlier point that you dont refinance the borrower after 3 years. Agreed, Fee for Service does not work with Old Broka churn example.

However, the borrower usually has a much lower rate so its hard to refinance anyway. Refer to Old Timers example being 6.09 or 5.79% (3 yrs fixed) versus what you get through broker channels.

Old Timer is using rate/products that you cant access via 3rd party channels e.g. remember CBA Homepath super low deal or the old Wizard Rate Breaker. How would you refinance that after 3 years!

Old broka you better check your maths on coming up with a figure $8,939 higher = he only charged $7,000 fee.

I am considering changing my model now. I am thinking of:

- Still getting licensed as the new legislation encourages borrowers to check that your broker is licenced. Its a good thing.
- Still using my aggregator for HLVR loans and offset borrowers Fee for Service fees, where applicable.
- I would not pay aggregator for any Fee for Servivce loans.
- I WOULD ALWAYS RECOMMEND THE BEST DEAL FOR CUSTOMER INCLUDING DEALS THAT ARE NOT ON AGGREGATORS PANEL = FEE FOR SERVICE BROKER IS BETTER.
- I would charge 2% as it sounds fair e.g. Real Estate Agent.
- Any lender which pays less than 2% commission, I would charge the balance to client. Making the borrower chose a different lender based on the refunded commissions.
- I would carefully look at if it made better sense to be a financial planner over a licensed broker.
- I dont think I would be a member of MFAA anymore.
- I would give my borrowers choice and would charge a fee to enter deals electronically to 3rd party channel commission refunds versus manually submitting the loan to the branch for faster service.

Old Timer can we setup a forum to workshop this more?

Commented by: Old broka at 24 Jun 2009 01:46 PM

Re :90s Old School Broker comments "Old broka you better check your maths on coming up with a figure $8,939 higher = he only charged $7,000 fee"

My comments were
"So, based on the above.

* Clients were charged $7,000 upfront added as principal to the loan (negative)

* Saved $3,420 ($95 p.m @ 36 months) on the initial fixed term) (positive) yet

* At the end of the fixed term, the balance on old timers loan would be $5,359 higher.

So, in summary, the clients would be $8,939 worse off
with old timers deal (fee of $7,000 + loan balance $5,359
higher, less repayment savings of $3,420)

Commented by: Riddler at 24 Jun 2009 01:55 PM
I reckon old broka, older broker, 90's gerriatric and ancient brokas are really all just Geoff Briger trying to divert the heat! Back on topic - is Vanilla the flavour to crave? Or is it just a middle of the road product not paying a commission.

Commented by: 90s Old School broker at 24 Jun 2009 01:57 PM
You still are missing it. The correct calculation is higher balance less monthly savings. $5359 - $3420 = $1,939 (if you refinanced them at 3 years. Dam you could lower the commission to $5,000 like aincent broka above says. I think you can now see based on other comments above e.g. aincent broka that it works.

Commented by: 90s Old School Broker at 24 Jun 2009 02:00 PM
Vanilla is not worth talking about lets just stick on the Fee for Service discussions as I am interested. Vanilla model does not work for me and I would never use them. I would however become a Fee for Service broker.

Commented by: ancient broker at 24 Jun 2009 02:18 PM

So does anyone disagree that the following model would be appealing, or at least worth exploring? A brokerage fee of 1.25% ( maybe 1.5%) for introducing clients to lenders and products not available to brokers, provided the deal stacks up over say, 5 years? You could continue to operate a business through aggregators, as we all know some customers just want certain lenders, but for all other deals ( where customers are driven purely by rate) you could write those loans outside of the aggregator panel? It would provide diversity, and a safety net in case the banks screw us all again. Or, as your fee for service business grows, you could wind down the aggregator side of things. After all, its going to take a while to establish a network of contacts with private bankers at lenders like HSBC, Arab bank, or wherever else... Thoughts?

Commented by: Voldemort at 24 Jun 2009 02:32 PM
Further to Ancient Broker's comment. I currently do this. Normal run of the mill mums & dads who need a straightforward bank loan - i charge no fee. For those requiring more work or are non-conforming, they are relying on my expertise and skills to present the best deal so whether or not the lender pays a commission i charge a fully disclosed fee for that service. Although i only charge 0.55%.

Commented by: 90s Old School Broker at 24 Jun 2009 02:34 PM

I am in becuase it makes sense to have a minimum commission rate for my service. I am thinking a commission floor. My proposal is 1.25%. If the banks pay me a commission I will disclose it to the borrower and refund it to them.

This way the borrower chooses the best deal for them and gives them choice of dealing with the 3rd party networks. I can also offer special deals that are available from the branches.

I would attend a confidential Breakfast to discuss further? I am from Sydney so it would need to be in Sydney.

BROKERS ONLY = NO FULL OR PART AGGREGATORS, MORTGAGE MANAGERS OR LENDERS ALLOWED.

Commented by: Tom at 24 Jun 2009 02:56 PM

I agree...Milli Vanilla you have just lost control of this thread, but feel free to throw your product into the mix along with other non-major lenders. If aggregators aren't going to stand up to the banks commission cuts, poor service and now re-acreditation fees then it's time to direct business elsewhere.

Only problem is new legislation and licensing requirements are probably only going to further restrict how we operate. I am in WA so I know all about licensing and compliance obligations.

Would it be fair to say any lender would accept a loan application through the branch network, introduced by a broker who charges a fee for service? Would aggregators allow this practice (as well as hold accreditations with them) or shut us down?

Commented by: 90s Old School Broker at 24 Jun 2009 03:46 PM

Agreegators are going to get concerned as they wont be able to clip the Fee. I recon the Aggregators will need to switch to a fee based service like connective and provide information like a subscription to information service.

We wont need the aggregators to hold the accreditations anymore unless we want to refund the fees to borrowers.

The lenders wont be able to control us walking into a branch with a borrower holding an application for $500K. How can they fight it? I am sure internally their will be some cat fights amoungst the banks divisions but who cares. The funny things is we wont be forced to use electronic portals or put up with crap service anymore. HOORAY!!

I can not see how licensing will restrict us operating our business in this fashion.

Commented by: Geoff from Vanilla at 24 Jun 2009 04:02 PM

It looks like you've finally worked it out!

Yes, I am trying to promote my Vanilla Loans products, but I am actually set to become a mortgage broker (1/9) on a “fee for service” basis (after a 3.5 year absence) and would not contemplate re-entry the market under the current appalling conditions where lenders tell brokers what they will earn and then make-up all the rules around those earnings.

Sorry to all the conspiracy theorists - the concept of no commission by lenders is the only way I could think of to break the chains of the current system and take control as a broker. The brokers who have the courage to change and really be true brokers will be the big winners here.

Perhaps in time Vanilla will be able to deliver an even sharper rate (I don’t care what you say - 5.19% is good when you look at our overall package), but I know of mortgage managers who will play in this space - so go and talk to them. Competition will ultimately win consumers a better deal and force the banks to join the party.

Congratulations also for eventually working out that it is the third-party banking channel and aggregators most threatened by this model, because you can now by-pass them completely if service standards do not meet your expectations.

That’s exactly what Vanilla intends to do if they choose to ignore the opportunity to centralise their offering for “fee for service” brokers. I wish you well in doing the same.

That’s it for me - thanks for the hate mail, but also for the recognition that I started this discussion and have definitely found the solution for the current woes of brokers.

Commented by: 90s Old School Broker at 24 Jun 2009 05:46 PM

Geoff,

I appreciate that you are a fee for service broker but you are not any where near the standard that i would follow. For example: you look like your earning a double commission as a mortagge manager and secondly you are not offering the best product in every circumstance i.e. only a Vanilla branded product. I am sure if I look at your provacy act I will identify either ING, Resimac or challenger is the actual funder and then I will be able to work out how much you are earning.

We dont want to coninue talking about Vanilla as we want our own thread to discuss the real issue of Fee for Service replacing subsidising the current environment and imroving the quality of our offering.

Please refrain from plugging your own agenda.

OSB

Commented by: Fee for service supporter at 24 Jun 2009 07:22 PM

I have to say that I agree with the majority here, however where I have really found that the fee for service idea works best is the post settlement service. With the majors (via aggregators) these days, properly servicing your clients after the loan settles is practically impossible. If, however, have you good contacts with a branch manager or private banker and can show that you write good quality business,you'll find that servicing the client is much easier and works out to be beneficial for all involved. The lender doesn't need to spend time on your clients, your client will know that changes or requests get sorted out properly and quickly, and you get to maintain close contact with your client through the loan tem. The client in turn understands why you may be charging 1% upon settlement and provided you care about the development of your clients, they won't find the need to refinance afer 3yrs and your repeat business (and therefore your standing among the lenders you choose to deal with) will be extra-ordinary. Provided the fee is fair and service after the fact is maintained, I will always support this notion and quite happily take business away from the majors.

Commented by: Accountant and Broker at 24 Jun 2009 11:29 PM

Old Timer, the idea of capitalising the broker's fee into the loan sounds very interesting. Borrower' normally capitalise LMI already so another thousand or two in Broker fee's capitalised shoudln't be a problem for the borrower.

The key issue is how to convince the borrower to choose a loan that has been increased by the broker's fee amount. If borrower goes to bank branch direct, they don't need to borrow as much (as they don't need to capitalise any broker fee).

The way to convince the borrower to go down the broker fee capitalisation path is to convince the borrower that a broker will structure their loan much better than bank employee. Broker's need to show their worth and prove why they're are better than bank employee's, when it comes to structuring their clients' loans.

Access to a suite of products from the non-bank lenders is not a compelling enough reason to convince borrowers to "borrow" the extra broker fee. Broker's need to prove that they are better than bank employee's in their advice to borrowers. Broker's need to add value by being able to compare all loan products across ALL lenders (a bank employee will only compare products available from the bank they work for e.g a CBA employee will not comment on how their bank's product compares to ANZ's products).

Being also an Accountant, I have the capacity to provide loan structuring advice that helps borrower maximising tax deductions and minimising CGT for their investment loans. Broker' have to show their worth and prove WHY their service is better than a typical bank employee. I reiterate, access to alternate products from non-bank lenders is a good start, but it is not a good enough reason for a borrower to approach a broker over a bank employee.

I imagine my clients have no problem if I charge them a reasonable fee for my loan "advice". Old timer thanks for the tip on capitalisation - never thought of it that way.

While I'm on the topic of convincing borrowers to choose brokers over bank employee's (to complete loan applications), I think MFAA and the aggregators are not doing enough to advertise and market what brokers can offer (that bank employee are not capable of offering). Its a WAR of broker's vs bank employees now and MFAA/Aggregators should use their marketing budgets to help us brokers out! "Differentiation by service and not just by product" is the key message we brokers need to broad cast to the broader community!!!

Commented by: Tom at 24 Jun 2009 11:38 PM
Come on all broker fed up with banks and aggregators crap service. Log onto old timer's blog and let's swap ideas about a fee for service model.

Commented by: Accountant and Broker at 24 Jun 2009 11:39 PM

Just thinking of the practicalities of Old Timer's method:

If I want to add my broker advice fee to the loan of the borrower, do I just create an invoice to my client and have that invoice mailed to my client's solicitor to include in the settlement? Will the borrower need to have permission from the Lender that a Mortgage Broker's fee is to be capitalised into the loan?

If a borrower has unconditional approval for a $300k loan from the lender, will the borrower need to ensure that the lender will allow the borrower to borrow $302k instead (i.e $300k loan plus $2k broker fee)?

Borrowers currently need confirmation fom lenders to allow LMI capitalisation, what are the chances of lender's allowing a broker fee capitalisation in addition. It will have an impact on the borrower's servicability (and a material impact if the broker fee is a particularly large fee).

Commented by: keep commissions at 24 Jun 2009 11:57 PM

Xerxes comments about selling your advice over selling on price is spot on. Broker's can't just rely on a cheaper loan to divert their business away from the major banks.

As long as price (rates and fee) are reasonable, the smarter borowers will have no problem using a value-adding broker over a bank employee to structure and process their loan.

Key issue is how to convince the broader community that broker's provide superior structuring and loan comparison advice (compared to the average bank employee). Some heavy marketing from the MFAA and Aggregators will certainly help. I call on these large organiations to do something useful for use brokers and start selling our superior service.

It's time to declare WAR against these major banks and this marketing campaign would be a good foundation for us brokers to work on.

Commented by: Tom at 25 Jun 2009 01:27 PM
Hey old timer what happened to your positing with the blog link. Did you take it off or have you been gagged by AB? Year where is the MFAA when out industry is turmoil????? Deadly silence from all the aggregators too.

Commented by: Jo at 30 Jun 2009 06:52 PM

Being new to the business, I have been appalled at the bullying of the major banks. The CBA seems to want us to be micro branches of their business! The apathy of the majority of brokers who write most of their loans with one lender, (you guessed it, a major bank)is also very disappointing and so I have wondered about a fee for service capitalised into the loan amount, of course. One aspect that has not been noted is that the lenders will benefit by a 1-2% growth in lending, ie. our fees. So with a growth in lending without the associated commission cost, lenders could be in a position to haggle a little, and this is the perfect scenario for informed brokers to prove their worth to clients, ie. to be brokers. The scenario renders aggregators irrelevant, thus cutting out another tier of cost (which has been bourne by brokers)and allowing room for brokers to haggle on fee perhaps, although I believe a standardised fee structure needs to be dictated somehow because the public need to know what to expect. How can we argue FFS to the government boffins working on legislation to regulate us? Should we?

Commented by: REspone to Jo at 30 Jun 2009 10:15 PM
You are a moron. Get out of the industry. Get a job as a hairdresser

Commented by: Jo at 01 Jul 2009 08:21 AM
With such an articulate 'REspone', who's the moron? At least I'm putting some views out there. Have you got something constructive to contribute or are you one of those brokers who writes all your loans with CBA?

Commented by: Response to Jo at 01 Jul 2009 03:36 PM
CBA - What planet are you from? DO you hold any direct accrediations I doublt it. You are a small nufty broker based in Adelaide affiliated to 1 mortgage manager.

Commented by: Old Timer at 01 Jul 2009 08:58 PM
Why dont you kids just stay focused on the real issue here and that is you need to start charging a fee.

Commented by: DD at 03 Jul 2009 05:11 PM

Great Idea(for them), but how transparent is this?
Looking at his pricing structure, he is making a killing in the commission from Fistmac.

Is he disclosing the fact he is getting a mortgage management fee, but not paying the brokers. what is happening to the fee he would be getting at that pricing- if he was serious the customer would pay about 0.4% less.

Mortgage management fees are commissions aren't they.

Commented by: Xerxes at 15 Jul 2009 02:28 PM

Either many posters on this blog are not brokers, or they are brokers without much going on up top.

The commission based model we currently are under has taken us to 35-40% market exposure (surely that speaks for something). Sure at present we are being attacked by the banks and they have an advantage. But have some balls people. The tide will turn. Funding will return to RMBS & along with it competition for our business.

If we jump to a fee for service model our industry will be decimated. Some brokers (without much consideration) might say good less competition for me. Wrong.

If brokers go from being mainstream (40% exposure) to bit players (as brokers were back in the early 90's), you will not be servicing the standard mum and dad customers you have today. Only fringe types will use your services.

Why would any clean skin, blue chip customer pay you $2,000-$10,000 to hold their hand through a loan application.

I definitely think I offer good service to my customers and believe I add value (that's why I get my commission).

Anyone who thinks banks/lenders will reduce their loan interest rates to customers because they don't pay us a commission is a fool (just have a look at Vanilla's rates for proof). The banks interest rate pricing is based on the base branch cost of writing a loan.

From my own analysis a broker introduced loan is marginally more expensive for a lender than a branch originated loan. However as we are effectively a contracting channel for banks they would expect to pay marginally more for the flexibility and effeciency of a contractor.

Brokers act as contractors to all lenders that use us. We are an effecient sales force. Whether businesses like it or not, one way or another you must pay for your sales force.

This talk of fee for service is lunacy. If this idea ever catches on it effectively means a free sales force for lenders. Free for everyone except for customers.

1: Lenders win (free sales force - bigger profit margins on broker loans) plus less people will use brokers and more people will go direct to their lender (reducing competition - as brokers are a big driver of competition).

2: Brokers lose (getting blue chip customers to swallow $3000 fees will not be easy - despite what some bloggers have claimed). Our industry will go from 40% exposure to less than 10% within a very short space of time.

3: Customers lose (no reduction in their lending rate and to gain the expertise of the brokers they previously used they will need to pay thousands of dollars).

Please think people. Think for goodness sake. I can only conclude that many bloggers on this site are not really brokers.

Commented by: tba at 16 Jul 2009 02:04 PM
5.19% plus an app fee of $825? you must be joking right? go to St George, 5.07% basic loan, lower app fee and no ongoing fees. 0.60% upfront and 0.15% trail... plus any loadings for LMI, etc. i wonder what the DERFS are?

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