Mortgage Choice negotiates higher commissions

As well as an increase in commission rates, the franchise’s financial results also boast record growth in loan book and settlements

Mortgage Choice negotiates higher commissions



National franchise Mortgage Choice has reported an increase in broker commissions amidst some very positive financial results.

The average upfront rate for FY17 was 0.6544% which slightly increased from the 0.647% in FY16. On the other hand, average trail commissions are predicted to fall to 0.175% by June 2021 as the franchise’s loan book matures.

“The trend in relation to commissions over this recent period has been that they have increased somewhat. So we reset the commercial terms with a number of our significant lenders over the last 24 months, whereby our rates of commission have actually increased,” said Mortgage Choice CEO John Flavell in a financial results briefing yesterday (24 August).

“The decline in [trail] commission rates [is] not as a result of commission rates that we’re being offered on new loan settlements having come off. That’s actually a result of the proportion of our book that was generated with commissions prior to the GFC ten years ago continuing to diminish.”

Regarding the ASIC broker remuneration review, Flavell highlighted ASIC’s beliefs that brokers deliver positive consumer outcomes and that the current remuneration model was relatively solid and robust.

“If there are opportunities to strengthen that then it’s at the fringes,” he said.

Mortgage Choice received $75.1m in upfront commissions and $96.4m in trail in FY17. It then paid $54.6m in upfront and $59.1m in trail during this same time period, putting the firm’s net core commission earnings at $57.7m.

FY17 saw two ‘best ever’ results with the franchise’s loan book increasing by 3.2% to $53.4bn and settlements rising by 1.2% to $12.3bn. Market share remained flat however at 3.7%.

Settlements from the four major banks have continued decreasing at Mortgage Choice, falling from 51% to 47% between the 2016 and 2017 financial year. Share of ‘other banks’ rose from 30% to 33% while building societies and credit unions remained steady at 6% and 7% respectively. Interestingly, non-bank market share rose from 6% to 8% during this same time period.

Cash net profit after tax for the 2017 financial year was $22.6m, an increase of 10.2% from the year before, while statutory net profit after tax was $22.2m, an increase of 13.5%. The statutory result includes the net present value of trail that arises from loan settlements in FY17, re-evaluation of trail relating to prior periods, as well as share-based remuneration, CFO Susan Mitchell said.

A wider scope

The company has increased its franchise network by 49 branches to reach a total of 449 at the end of the financial year. The number of brokers also increased by 36 during this time, bringing the total number to 654 across the country’s network.

Mortgage Choice has focused on diversification during the 2017 financial year meaning that, while the portfolio of the firm’s home loan arm has grown, the overall share of revenue from franchise brokers has dropped from 89.5% to 88.5% between FY16 and FY17.

There has also been an increased focused on referrals within the company with 49% of Mortgage Choice brokers referring customers to the franchise’s financial planners on a regular basis. The total number of referrals increased by 13% between FY16 and FY17.

“We’ve seen an increase in terms of the proportion of our debt customers who are now having a discussion with relation to their financial advice requirements. An increase of 13% year-on-year – we’re very pleased but we’re ultimately not satisfied,” Flavell said.

“At this point in time, we’re still speaking to less than 20% of all of our debt customers in relation to their wealth needs. [There is] a lot of opportunity for us to continue to strengthen the relationship and increase the value that we deliver to our customers and also increase the value that we deliver to our franchisees and our shareholders.”

Incentives for brokers referring to financial planners within Mortgage Choice are subject to commercial arrangements between franchise owners. These are the same across the network and are disclosed to the customer.

Related stories:

Mortgage risks trend up at big four bank

Regional bank grows broker loans by 40%

Non-major grows profits by 11%

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