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Follow our lead on commissions, says franchise chief

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Australian Broker | 19 Feb 2016, 08:00 AM Agree 0
Mortgage Choice chief says the industry would benefit if ASIC’s forthcoming commission review suggests the mortgage broking industry adopts the same commission structure as it does
  • | 19 Feb 2016, 08:54 AM Agree 0
    I don't disagree with the concept of removing potential income based bias. My question is who keeps the difference and my guess is Mortgage Choice. Donate to independent charities and you're on a winner!
  • Paul Gollan | 19 Feb 2016, 09:01 AM Agree 2
    The mortgage choice commission model is anti-competitive and provides no incentive for a broker to look beyond a couple of lenders that 'they' prefer to deal with. Mortgage Choice only maintains a limited / very small panel; which is what is required to managed such a flawed commission model.

    A large panel of lenders, offering a diverse range of products and yes different commission rates is what drives competition and better outcomes for consumers.

    Mr Flavell a passionate capitalist one day advocating no changes negative gearing (I agreed with those comments brw), but a self serving rampant socialist the next.
  • Damien | 19 Feb 2016, 09:18 AM Agree 1
    Funny, I get almost all the trail and all the upfront commission paid to myself and thus, I have to write less business to make the same amount of income as other brokers writing double the volume. Maybe Mortgage Choice could adopt this strategy?
  • Level playing field | 19 Feb 2016, 09:29 AM Agree 1
    What rubbish.
    So if I go to see a lawyer; will they now be regulated to ensure they receive less income than they would have in 2006? Will they now be getting the same income from each and every client? Will all lawyers now be charging, based on a schedule of income set out by a regulator. Or is it just Brokers, that can never get pay increases?

    Given we are currently paid at a lower rate of commission than we were a decade ago; a regulated income across the board, means that in 30 years time, we will still be renumerated with commission rates that will be less than they were 40 years previous; as all Banks will never agree to an increase - and aggregators wont care - they still get their cut, and own most of the Banks we get paid by anyways (so the incentive is to keep commissions low - hence lobbying for an ASIC review behind the scenes).

    Not sure why the obsession with governments to remove the free enterprise system in favour of something more akin to a dictatorship or communist regime.
  • Steve McClure | 19 Feb 2016, 09:32 AM Agree 0
    I disagree, strongly. Brokers run their businesses in a market of ups and downs (e.g. clawbacks). There should be no price mediation. We can still comply with the NCCP legislation as long as we follow the processes - none of which involve giving up commissions that you are entitled to.

    John's proposal is like saying that the aggregator gives the broker the business, and can therefore regulate commissions. No, its the broker that brings in the business. If we advance the thought process to the outcome of commissions, what incentive would a lender have to increase commissions or reward with bonuses? In fact they may DECREASE them! If you price control in this way, then you artificially meddle with the market. I'm no expert, but it even seems to defy the intent of Australian Competition Law.
  • Macarthur Broker | 19 Feb 2016, 09:38 AM Agree 0
    Self serving I'm afraid John. The franchisee gets the same commission and mortgage choice pockets the difference. You said yourself there is very little difference so why the need to standardise. The last time I checked competition was good thing. Imagine if all lenders were allowed to pay the same. Commission levels will dive forcing many brokers from the industry. Less competition would lead to higher interest rates and the poor old consumer who ASIC are supposed to be protecting would be worse off.

    I reckon we are regulated enough for now.

    I don't have a problem with ASIC wanting a review. It's just critical that the industry demonstrates there is no need for major change to commission structures.
  • SEQ Broker | 19 Feb 2016, 09:41 AM Agree 0
    If Mr Flavell is insinuating that all lenders pay the same commission then I say really - who cares. This is just another beat up by a regulator looking desperately to find some place to justify its existence now that the NCCP (While ambiguous in places) has really placed the borrower first.

    I dont know of any broker who would cause a penalty on a borrower to improve a commission, mainly because there is so little incentive to do so.

    Moreover, if Mr Flavells company is causing brokers to use particular lenders based on financial leverage, then that puts his firm in the nasty position of having to justify why a potential penalty is placed on their borrowers because of this. He should ensure that brokers have freedom of choice in order to be able to pass onto borrowers the best deal for them without being financially penalised. What a can of worms!
  • Hollywood John | 19 Feb 2016, 09:48 AM Agree 0
    Maybe MC could attract more brokers in the key state of mortgage broking in NSW if they had a more equitable commission system and there share price would not have almost halved under the new MC CEO.
  • MMW | 19 Feb 2016, 09:48 AM Agree 1
    What everyone forgets is that we are self-employed. The lenders are our suppliers and the borrower our customers. The aggregators are our service providers. Franchise models as with all franchises merely offers those with no or little experience in a particular industry to enter the industry reliant on the expertise of the franchisor.
    So let's see who is speaking for us the brokers who make everything happen:
    > Lenders
    > Aggregators
    > Silent MFAA - blatant conflict of interest. An association with LENDERS as members calling the shots
    Where is the rational in calling for the SAME income for all who work in a particular industry?
    Mortgage Choice needs to be more transparent in how they pay the brokers who work for them. You do not speak for the industry you are merely a business model within the industry.
  • Wazza | 19 Feb 2016, 09:58 AM Agree 0
    How would that apply to a "One Man Band" Get all the money in and divide it up to yourself evenly - ending up with the same amount.
  • Robert B | 19 Feb 2016, 10:00 AM Agree 0
    I thought we, the capitalist won the cold war. The west is stronger when we let competition do it's thing. Too much meddling by Governments is doing great damage to our country and unfortunately consumer are the ones who suffer.
    Mortgage Choice have their marketing angle, just as Wizard did with their jumped up comparison rate which was biased towards their products.
    Currently there are no problems with commission structures, it is just different companies aiming for a marketing angles.
    What we do need is some regulation on these regulators to stop them damaging the drivers in our economy. The nanny state is unfortunately dumbing down the population
  • Dave | 19 Feb 2016, 10:20 AM Agree 1
    Mortgage Choice may be paying their brokers a flat fee, but I bet they themselves (Mortgage Choice) don't receive a flat fee from the lenders.
  • David | 19 Feb 2016, 11:25 AM Agree 1
    Mr Flavell, I clearly remember you trying to win business for your previous employer by spruiking the benefit of your employer back ending trail payments and telling us how much more our business would be worth if we used your (previous) Bank. I guess Mortgage Choice is the one benefitting from those high back ended trail payments rather than the Broker who generated the business. So a leopard can change their spots.
    • observer | 20 Feb 2016, 10:53 AM Agree 0
      @David, well said. Comrade Flavell certainly seems to be marching to a different tune these days.
  • Concerned Broker | 19 Feb 2016, 07:01 PM Agree 0
    John gets paid first.. so its a great model for him as he is at the top of the pyramid!
  • OzBoy | 20 Feb 2016, 09:03 AM Agree 0
    I disagree. If you do this then you are trying to turn our industry into a "cookie cutter" and we are far from that. You also assume that the services provided by the different lenders is the same and as we all know it is far from that. Price is and has always been used a differential and our industry is no different. It's unfortunate that Mr Flavell has taken this approach but another CEO sprouting what is best for them as apposed to those that they are representing in this case MC franchisee's is very disappointing. As pointed out in the article we now have greater education, more compliance and better outcomes for our clients however you want to pay us less! How can you justify that position when in every other industry more education and greater client satisfaction would get a pay increase.

    Mr Flavell care to tell us the difference between your pay last year and this year? Did it increase? It should have as you have provided a better result, now imagine if the board said to you they are going to decrease your pay. Not a nice thought is it?
  • Broker | 22 Feb 2016, 10:48 AM Agree 0
    PAYG employees tend to exercise little common sense when it comes to commenting on what are todays reasonable commission levels.

    Us self-employed brokers are basically paid on performance , what on earth is wrong with that?
  • Greg | 22 Feb 2016, 03:03 PM Agree 0
    The whole commission discussion always astounds me with its narrow focus on one particular aspect of one industry. There are many forms of remuneration in many industries. Banks pay wages to loan officers for doing loan paperwork and vetting ineligible borrowers, and they have chosen to pay aggregators / brokers a commission to do the same (albeit on a success basis only). Banks could easily choose a different model (eg flat rate) and they could all have different models if they like, but our free market has evolved to be commissions as the payment method to contract labour for loans (brokers) . Payments from lenders are not related to getting the client a low interest rate, it is for doing the paperwork and meeting compliance obligations. The ability of brokers to do limited research and comparisons across a panel of lenders is an advantage to consumers that they get for free. Yes I say free here even though I can't say it in my advertising. Brokers put a lot of energy into achieving great results for clients because this will mean repeat business and future referrals. Failing to meet market expectations will mean a brokerage goes out of business, the same as any business.

    Within the broker world commissions are fully disclosed, yet bank employees doing the same job do not disclose how they are compensated (ie salary bonus for reaching certain KPI's Christmas bonus etc). Perhaps the regulator should start enforcing disclosure in all loan channels. I detract, back to brokers where fees are disclosed and the consumer is fully aware, the consumer has the power to choose who will help with the paperwork.

    The regulators argument seems to revolve around two basis premise, that brokers as such excellent sales people that we could perhaps sell 'ice to Eskimos' or the consumer, whilst capable of dealing with adult decisions in so many other aspects of their life for some reason when it come to the biggest purchase in their life become less vigilant and more gullible.

    It is my experience that people do a lot more research on a home loan than they do on a car or other purchases and whilst some people can sell 'ice to Eskimos' the ice had better be damned cheap or the Eskimos will find out and take their business elsewhere.

    Ultimately the customer can choose whether to use a mortgage brokers or not and the lenders can choose a different remuneration structure if they want, we should only regulate for full disclosure so the consumer can make an informed decision.

  • Marty | 22 Feb 2016, 10:08 PM Agree 0
    Mc is lucky independent brokers keep the lenders incentivised to keep commissions competitive. Competition keeps them similar just like rates offered to borrowers.

    ASIC may think lowering commission will drive down rates for consumers but they won't as the banks will still offer same rates through their branches thus just enriching the banks further. They proved they have effective pricing power very succinctly late last year when all the majors had no issues forcing through rate increases with no real competitive disadvantage. I hope ASIC realises this.

    Mc is not the industry as someone else mentioned they are just one model in the industry and in the minority.
  • Sceptic | 23 Feb 2016, 10:07 PM Agree 0
    I could not think of anything worse for the industry then flat commissions. It will ultimately drive down profitability of the industry when the oligopoly suppliers have enhanced leverage to drop commission in concert as soon as something impacts there business. This was very clear in GFC times in cutting commission while their profits increased unabated!. This is very clear with the majors all lifting together.

    Oligopoly markets are all about not entering a zero sum game and conversely, why allow a competitor to lift rates say 0.2% and not miss the opportunity as well? 0.5% upfront today, 0.4% tomorrow because they waited for an event like the Murray report.

    Come on MC, don't we need competition and incentive? Really, next thing is that MC negotiates the same rate and offer across all lenders and then... why use a broker? Maybe next step is petrol prices all the same, oil is $30 a barrel why pay more!

    Would challenge MC to look at say any 5 deals in our WIP and have a look at what happens above the mum and dad market MC is in.

    MC can't escape the tide of specialisation and that clients are actually learning more and expect more. You pay for what you get and have to ask how paying a flat rate is better?

    Will the shareholders in MC agree that their business will be more profitable with flat commissions offsetting the power it is transferring to the majors? Will MC guarantee commissions won't be reduced in the event of a (opportunity) event? Will the MC writer guarantee he is not selling out the broker market for the next job within the oligopoly? High fives all round!

    Overriding all is that consumers are using brokers more and more, so will flat commissions drive this higher or push the good brokers to charge fees?

    That's the question MC, if I was a shareholder, I would say the overall skillset of your brokers has a bell curve at the bottom end of the industry, evidenced by their acceptance to cough up 20% /- of upfront an trail as compared to a broker at say AFG & Connective who writes the same loan. MC brokers can and do often run 20% harder to make ground which is acknowledged.

    Just can't see the rationale in MC theory? I think the question MC is saying is, this is good, the Banks will pay more from a flat commission, not less. Can we align 100% of MC pay to underwriting this?.

    MC - love to see your response!
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