Net of offset commissions hurting brokers, says FBAA

by Jayden Fennell13 May 2022

The FBAA is calling for greater consistency across the mortgage finance industry on net of offset commissions, with its research revealing that payment delays are hurting brokers financially.

Net of offset commissions occur when a broker completes a loan for a client, then if the client decides to put some of the loan funds into an offset account or spend the money elsewhere, the broker does not get paid the full commission amount.

In some instances, clients have used alternate funds for the loan and have placed extra funds into an offset account, which is counted as net of offset, even though they are separate funds.

After securing Labor’s commitment to look at clawbacks should it win the upcoming federal election, FBAA managing director Peter White AM (pictured) is also shining the spotlight on net of offset.

“There is no excuse for delaying commissions for 12 months,” White said.

“I am calling this the unholy trinity for brokers – net of offsets, clawbacks, and retention teams – are  all damaging to brokers’ profitability in business.”

Read more: Labor might consider limiting clawbacks

The FBAA has just conducted in-depth research into the true cost of running a mortgage brokerage and White said that while broker incomes vary like any other industry, it’s a myth to suggest that finance and mortgage brokers all earn big money.

The analysis reviewed financial data of a cross-section of experienced brokers from 2018 to 2021. It showed that while gross revenues and profits had risen, net profits after wages were still on average very small.

“The costs of running a brokerage have soared over the past few years, and this includes business running costs, aggregator fee increases, PI insurance increases and cost of outsourcing services,” White said.

“But clawbacks and net of offset transactions have eaten into profits in a huge way, and we have to address this.”

The analysis found that the number of loans settled where commissions were paid net of offset funds had risen from 2018 to 2021 by 236.2%.

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The average number of deals where brokers had to wait 12 months to be paid a commission due to the net of offset arrangements had risen from 2018 to 2021 by 339.5%.

The report also revealed that the average annual clawback value per annum to a broker had risen from $10,229 in 2018 to $15,077 in 2021, being a 47.4% increase. In the same period, lender-causing cash-back incentives increased by 59.1%.

“While we will be talking to regulators and politicians, my hope is that the lending industry itself can take the right action,” White said.

Origin Finance director and mortgage broker Kris Menon (pictured) said net of offset commissions affected brokers negatively.

Kris Menon, Origin Finance

“If there are changes to the client’s circumstances and they decide to move their funds elsewhere, there is no way of catching the trail about how much is spent when the trail gets claw backed,” Menon said.

“As a result, brokers are not getting paid their full commission which is not fair.”

Menon said a broker cannot call a client and ask where they were spending their money or why they decided to place it in an offset account.

“I am grateful for the FBAA leading the way and for doing a good job by working hard to support brokers,” he said.