Comment of the Week: Brokers remain fiercely independent

by AB21 Jul 2014
The interim report of the Financial System Inquiry last week re-ignited debate about broker independence and bank ownership of third-party distribution channels.

The Inquiry posed the question of whether “vertical integration may have the potential to distort the way in which mortgage brokers direct borrowers to lenders.” Outsource Financial CEO Tanya Sale told Australian Broker that bank ownership of aggregators "muddies the waters" when it comes to broker independence, but brokers were divided on the issue.

Wozza said lender inducements and bank ownership structures have yet to impact the way he does business.

"Been broking for 8 years and I can't recall any client that I have steered to any product because of incentives or additional commission."

Steve McClure responded by saying brokers can never go wrong in offering full disclosure.
"Wozza, that's perfect, and its the way of many fine brokers. But, it's all about transparency and clear disclosure. If a client ends up with a NAB loan from a NAB owned aggregator, the client has to be aware of that (and at the moment they aren't) so they can assess the broker's advice. Therefore, with your suitable recommendations, the client would be informed & well served. That doesn't hurt anyone's business."

Brad Oliver echoed Wozza's sentiments, and said good brokers aren't swayed by incentives.

"Lender or Aggregator incentives don't come into it when I am assessing the best place for the clients needs and I am sure most other reputable brokers share this philosophy. Look after the client's interests first and they will come back again and even send you referrals."

methinks said bank ownership could undermine the broker value proposition.

"Consumers who use brokers are time poor and in need of someone to sift thru lenders and their offerings. Bank owned aggregators don't suit the model - Hi I'm from A and we are owned by C. Over time when consumers become aware of who owns what may very well erode the trust they place in the broker. If brokering groups would switch to the independents, perhaps this needs to be done."

Peter E chimed in in agreement with Tanya Sale.

"I agree totally with Tanya. The banks should not be allowed to own aggregation models at all if the system is to remain fair. We don't see NRMA offering a suite of other insurers products for sale over their counter do we? Whether the independence is relating to the aggregator or broker, both are compromised when owned by a lender in its own right."

And comment of the week goes to Tim H, who said disclosure is all well and good, but questioned how far it must go.

"Big question here is how far do we need to go with disclosure? Like Wozza and the vast majority of brokers I am not swayed by who owns my aggregator FAST or what incentives are offered whether they be from FastLend or other lenders. I provide my clients with a list of our panel lenders and how much commission they pay and the lenders clawback policy. Do I need to put another column highlighting who owns each lender? Do I then need to include what share of ownership is owned by each organisation or individual for that matter (eg: my fellow broker down the road who tells me he has some bank shares etc). Sounds ridiculous because that is where this discussion is going. The reality is that the vast majority of brokers are doing the right thing by their clients. Those that aren't will be weeded out over time and like most other industries they will be replaced by someone else who is unethical and so it will go on. I've been a broker for 17 years and in the industry for 35 years. Do the right thing by your clients and you will receive the rewards and experience longevity in this wonderful industry."


  • by Denise Brailey BFCSA (Inc) 21/07/2014 11:15:18 AM

    At long last these discussions are on the table. Colin Neave (C'wealth Ombudsman) wrote policy 2001 - 2009 to say Broker is Agent of the Bank because the bank never speaks with the Borrower. Other criteria included in the document. Whether aggregator in the middle or not, and deviously written agreements in between, Neave stated these agreements do not alter the fact the banks will still be made liable for any loss. Neave was head at FOS at the time. See Bulletin # 32 from ABOS. To fix the uncertainty all brokers have to do to protect themselves is to hand a copy of the Loan Application Form to the bank customer at the point of signing - all 11 pages plus the copy of the service calculator. Then internal lending staff cannot alter your document after you have written the information on the paper and sent in for processing direct to the bank.
    Secondly, ignore those lenders who instructed Brokers via (direct)email to "shred the original 12 days after settlement." We reported that fact to main stream media and went to print in 2010 via the Australian. Brokers should never shred the original - protect yourselves by giving the document back to the customer. Internal staffers used "gallons of white out" as stated by UK Police in evidence and the same has happened here in Oz. Broker originals prove that point....the internal copy has been altered. Thanks to all those decent industry people who assisted us with our investigations. The Brokers we speak to are astounded and very helpful.

  • by marty 21/07/2014 12:51:11 PM

    Denise this is where I lose patience with you. There is no neat original 12 pages to keep! The vast majority of brokers don't use hand written applications anymore. We take a generic application (not lender specific) and often in electronic format only. The data is then entered into the apply online system along with our product and security details. The clients sign the chosen lenders disclosure and privacy pages along with ours ...and that's it. No paper based application.

  • by Denise Brailey BFCSA (Inc) 21/07/2014 1:26:57 PM

    Not everyone is doing paperwork the way you described. However, it would then be easy to use online one - fill out for custoemr so not hand-written - electronic version. You then have to surely print out the completed version (say 8 pages?) and then ask customer to sign. Why not press the print button twice and leave consumer with a copy? What's wrong with that? Pretty basic really. If it eliminates fraud - that's an excellent second copy remedy. I always appreciate the comments.