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Money talks: Lenders reveal commissions under pressure

Lenders say broker commissions are under pressure and that's not likely to change any time soon. We speak to TANYA WHITE of Australian First Mortgage and IAN RAKHIT of Bankwest for their thoughts on the future of commissions.

Video transcript below:

Donna Sawyer, Australian Broker TV
Donna Sawyer:
 Lenders aren’t beating around the bush when it comes to broker commissions. They won’t be rising anytime soon.  In fact Tanya White of Australian First Mortgage says brokers are lucky commissions have maintained the status quo, given the increasing cost of funding.

Tanya White, Australian First Mortgage
Tanya White:  Commissions are under pressure, as are our margins and our income.  So you know there is a lot of talk about fee for service and do brokers start charging their own fee for the quality of service and the information that they provide.  Look that’s something that a few are trying and from all accounts, it does work and they are successfully selling the fee for service.  Some refund the fee on successful fulfilment of the loan.  In the near future I don’t see commissions dropping, but I certainly don’t see them increasing either.
Ian Rakhit, Bankwest
Ian Rakhit:  I think the environment at the moment is a very difficult one to see, what does the next 12 months look like in terms of commission or loan.  We have seen tremendous pressures on funding prices and I don’t think I will be alone in having pressure from the Boardroom on what does that mean as far as broker incentives are concerned.  I think that the heads of the Broker channel within the bank should all be applauded that broker commissions haven’t changed to the negative during a very difficult environmental period of time.
Donna Sawyer:  Ian Rakhit of Bankwest says the future of commissions is likely to centre on rewarding brokers who consistently provide quality submissions.
Ian Rakhit:  What I think will happen going forward and certainly the way Bankwest views this, is that we will look at the quality of the submission as being a real driver for commissions and incentives going forward.  So it makes philosophical sense to say that a broker who packages a deal correctly and therefore costs me less in terms of processing time may well get rewarded better than a broker who passes an application in with no pay slips, no supporting documents and costs me more in processing time, because we need to go back to the broker and the client for additional information.
Donna Sawyer:  But Tanya White says this model doesn’t work for non-bank lenders like Australian First Mortgage.
Tanya White:  Unlike the banks where brokers actually need to meet volume targets or meet on quality criteria, we don’t put brokers to that sort of subjective approach on how we pay them.  It doesn’t matter whether you are a big player, small player, part of an aggregator or direct, you will earn the same upfront and same amount of trail on your loans.
Donna Sawyer:  So what should brokers be considering when choosing their lending panel?
Tanya White:  Yes, our commission structure is very compelling and you know very attractive from day one for a broker, but that shouldn’t be the reason they deal with AFM.  They need to deal with AFM because of our product offering, because of our service, because of the skill of our team.
Ian Rakhit:  We are very clear it’s going to be 3 elements.  We have always been very competitively priced, we have always ensured that we develop and train our BDMs to make sure they are absolutely responsive to the broker.  The third wheel for us is service.  So we are average in terms of our turnaround times and brokers tell me that every day of the week.  We are putting a lot of initiatives together to really bring the turnaround time down and I have been very public about saying  we want to halve our turnaround time over the next year.
Donna Sawyer:  This is Donna Sawyer reporting for Australian Broker TV.