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Sedgwick shoots down commissions linked to loan size

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Australian Broker | 20 Apr 2017, 08:25 AM Agree 0
Several proposals have been made for banks around third party remuneration in the final Sedgwick Review
  • Pfft | 20 Apr 2017, 08:55 AM Agree 1
    So we are going to a flat fee per loan then. Essentially we have been given the stitch up, who didn't see this coming. The government, the banks and the regulators all in cahoots to increase bank profits.
  • observer | 20 Apr 2017, 08:58 AM Agree 1
    The community trust that the banks (CBA in particular) are seeking to restore is their own issue, it's not the brokers that are lacking in community trust it's the banks and their staff that need the overhaul.

    The tone of this report seems to suggest that the banks have got what they paid for. If the bank "owns" their brokers then end to end compliance is appropriate, but for those of us who are independent, then they can rack off. Remember the phrase "keep the bastards honest" , it seems like the banks have played a long game and now reined in a good portion of the broker channel to the point they now control the game.

    Its the independence of brokers from the banks that is the appeal to clients that they are getting advice for their beneift not the banks, when the bank owns the broker, no matter how much protesting to the contrary, there is still the perception that they will be sold whatever product the bank wants pushed this month.
  • Xavier quenon | 20 Apr 2017, 08:59 AM Agree 0
    Most of these recommendations are ok - however moving to a fee per loan rather than the current commission structure is unrealistic - banks get increased benefit and profit as the loan amounts increase and so a flat fee would play havoc with cost per loan especially on small loan amounts and see banks the winners again (making increased profits) for large loan amounts - neither brokers or consumers will benefit from such a change.
    This can be seen as a parallel in the real estate industry In Qld - sine the deregulation of commissions the average commission charged by agents have increased on smaller prices properties and the benefactors are luxury properties - complete opposite result to the one the government was seeking
    Issues with such reviews is that there usually is a big rift between the ideology that spurts out the recommendations and how it ends up translating in real life
  • Mad as hell | 20 Apr 2017, 09:20 AM Agree 1
    So if all the banks are going to pay a flat fee per loan then 1) is that not price collusion and 2) what do we need aggregators for?
  • Broker | 20 Apr 2017, 09:44 AM Agree 1
    These bank ordered findings are akin to having criminals report on how organised crime benefits the community.

    Since when did Sedgwick rule the banking world?
  • Cam | 20 Apr 2017, 10:27 AM Agree 1
    These "independent" reviews, usually relying on the opinions of one "eminent" individual seem to almost always be stitch ups with pre-determined outcomes. Reading through the babble, basically the recommendations are that banks have more control over the broker channel and they pay flat fee commissions so they don't pay as much on larger loan sizes. Both moves will benefit banks immensely while disadvantaging brokers and having no net benefit for consumers (I would argue they would be a negative as the independence of brokers will be challenged). The only proper response to this sort of rubbish is for brokers to move further towards the non-bank sector and withdraw support for banks but unfortunately too many brokers are in their comfort zone dealing exclusively with the majors.
  • Bottom Line | 20 Apr 2017, 10:56 AM Agree 0
    I've previously written what was going to happen; and its played out exactly as predicted...unfortunately.
    1) The banks lobbied the government through "lobby groups" under various guises, with the goal to getting commissions slashed (at a time when people were complaining the % rates paid by banks, were less than they were 12 years ago).
    2) Governments were then fooled into calling for a review of Brokers by ASIC (despite the fact that 92% of complaints in the mortgage industry relate to the banks, who only write 45% of the housing loans).
    3) Info is leaked that ASIC may be ruling that - after extensive investigation using actual data - the existing arrangements actually work well.
    4) Banks were caught on the back foot, having assumed (via their influence) that it would come back in favour of removing/capping commissions (and they leaked press reports about other countries that don't have trail etc during the ASIC review period). In panic they realised they couldn't be the 'faceless' people blaming ASIC, like they planned.
    5) Hence they quickly called a review of their own to come up with the conclusion they wanted ASIC to come up with. It's the reason that the report just quotes anecdotal things, and is very scant on facts or data. In fact after reading the report, the only real data evident, is something from the UK; which I could have cut and pasted.

    Any changes for Bank Staff are flimsy & wishy washy, and lack detail of how it will be gives a timeframe that indicates if banks want to do this, they have until 2020. The issues regarding brokers, were black and white, and to be implemented straight away.

    So they got to where they wanted; its just that ASIC outsmarted them, by coming to their own conclusions. Now they have to be the bad guys that they actually are, and cant hide in the shadows behind ASIC.

    As soon as APRA announced banks needed to hold more capital in reserve, for every dollar lent (some months back); we knew banks would pass that loss of profit to brokers/customers. Being watched closely at present in relation to customers, it was best to hit the a soft target that no agency or government body care about.

    Despite bravado from various groups/governments; banks still continue to do everything for the Profit....their customer rhetoric is just that....
    • Connie | 20 Apr 2017, 11:30 AM Agree 0
      I agree wholeheartedly, where is the Broker Industry Associations i.e. FBAA , MFAA response to defend the Broker's rights. It seems all we hear in the Media are ASIC and Bank comments
  • sam | 20 Apr 2017, 11:02 AM Agree 0
    Mmmm. Wonder if the real estate industry would like to see Sedgwick review their commission structure. Ouch!
  • Fed Up Broker | 20 Apr 2017, 12:04 PM Agree 0
    Why in hell is the ABA making recommendations affecting the Mortgage Broking industry. This review came about because the banks have a trust issue, not us. I challenge the ABA to ask any of my clients if they trust me. They are simply trying to avoid a royal commission.

    Hopefully the government & ASIC will see through this misguided report and consign it to the rubbish heap where it belongs.

    I guarantee that if remuneration is decreased as a result of this, I and many other brokers will either leave the industry or apply for mobile lending jobs with a bank. Great for competition, huh!
  • Buderim Broker | 20 Apr 2017, 04:02 PM Agree 0
    I don't understand the reasoning behind any of these reports, apart from what is already pointed out in achieving increased profits for the Big 4 banks.
    Please show us the evidence that consumer outcomes for clients that have used a finance/mortgage broker have been unsatisfactory, yes there may be a low percentage but what industry doesn't have that. Why would we have now achieved 63% of the market, IF the general consensus of the community is that brokers are not providing good outcomes.
    Recent reports have indicated that the 'average' broker earns between $70-80,000pa in upfront commission, and has a portfolio of approx. $38m. ($57,000 pa) so as a gross income before costs most of the industry earns somewhere around $130,000 per annum before the costs of running their business. We as an industry are hardly millionaires!!!
    Any implementation of a flat fee will not only decrease income(s), but also take away any potential sale value of a business that many have taken years to grow.
    • Fed Up Broker | 20 Apr 2017, 05:00 PM Agree 0
      Couldn't agree more Buderim Broker, I hope the MFAA, FBAA & our Aggregators are making a racket about this. I only started broking in my late 40s and am working my butt off so I will have a decent trail income in about 10 years. Do the clowns making these reports understand we get no annual leave, sick leave, super etc etc. Not to mention the insanely long hours a bank johnny would have no chance of matching. The commission is the trade off for this. Without that I would not be a broker and without brokers the consumers would be at the mercy of the banking sector and much worse off. The banks are the only ones that will benefit but that is what the ABA wants. Am i right?
  • Buderim Broker | 20 Apr 2017, 05:24 PM Agree 0
    Yep, Fed Up are most certainly right.
  • Consumer outcomes | 20 Apr 2017, 10:15 PM Agree 0
    Bottom Line is.. just correct!

    With due respect, if the banks commissioned the report and paid Mr Sedgewick, which of the 21 points reduced profitability to the masters?

    The reason consumers use brokers is because it works. The Banks cut commissions by 30% under the guise of GFC but their profits marched on unabated (with a government guarantee).

    The problem is that Mr Sedgewick plants the seed of fee for service, does that allow the broker to charge the Bank for time? Scenario's, substitution of security, discussion on fixed and variable rates, loan variations, switching from investment to owner occupier etc etc where normally they would pay a branch staff to do this??? Who would cover this?? No clawbacks??

    It is an oligopoly of mammoth proportions, and management theory is they use power to take advantage of this. We would have liked Mr Sedgewick's views on clawbacks. That was a litmus test if he comments on brokers in my opinion. We trust in ASIC having sourced much more data than ABA, the flex commission review was spot on, and we trust ASIC will maintain a laser focus on the consumer outcomes.

    The ABA report lacks broker outcomes and it was up to ABA to obtain this, not aggregators/franchises to supply - that's the culture of the oligopoly.

    Backing AFG, Mortgage Choice, Fast, Aussie, Plan, connective etc etc to deliver actual consumer outcomes - and:-

    Backing ASIC to deliver here.

  • SunnyCoastBroker | 21 Apr 2017, 10:57 AM Agree 0
    I have scanned through this report, and there are significant concerns in that the report seems to be slanted towards providing the banks, and in particular the big 4, with unreasonable controls over our activities as brokers. See recommendation 17: "Banks adopt, through negotiation with their commercial partners, an ‘end to end’ approach to the governance of Mortgage Brokers that approximates as closely as possible a holistic approach broadly equivalent to that proposed for the performance management of equivalent retail bank staff". Note the use of the word "governance". I don't believe this to be accidental..

    I have worked under what is now a bank owned aggregator for many years, and I will be watching closely their immediate and on-going responses to the recommendations of this report, and I suggest others in the same position do so as well. Any suggestion of not focussing on the brokers' interests will result in a search for an independent aggregator.
  • Clarke Kent | 26 May 2017, 08:40 AM Agree 0
    Sedgwick was mandated by the Banks' to complete this report not ASIC ~ talk about a conflict of interest he is being paid undisclosed but surely a sizeable packet to justify reduction of commission levels paid by the Bank ~ oddly enough one facet that ASIC ruled in our favour not to change. As my colleague stated this is a "stich up!"
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