While brokers call on lenders and aggregators to allow trail portability, one aggregator has defended the lenders’ stance.
Patrick McMenamin, director of Common Cents Financial Services, says brokers “live in fear” of losing their trail books if they choose to switch aggregators.
“It’s nothing more than an industry convention adopted between the lenders and aggregators – particularly the major aggregators – and it’s a restraint of trade and it’s a breach of the Trade Practices Act because it inhibits competition.”
These sentiments have been echoed by a number of brokers in the past. Outsource
Financial CEO Tanya Sale
, however, says brokers are not looking at the bigger picture.
“I know the lenders get hammered all the time, but at the end of the day we want those divisions to be profitable for the lenders,” says Sale. “Some of these people are just mouthing off, going off like a firecracker without thinking of the complications and implications of such a thing.
“Now, we don’t want to get to a situation where the lenders start reviewing the profitability of the division. It’s happened before - Westpac came out years ago and they were the first to change their commissions to 0.5 and 0.15, then the CBAs and the NABs brought in no trail for the first year - all that was done to ensure that the third party division or channel of that bank is kept efficient and profitable.”
But McMenamin argues that the very same lenders who refuse to allow trail portability for mortgage brokers are happy to do so for financial planners, and he says it comes down to nothing more than semantics.
“I believe the subtlety is that lenders don’t call mortgage brokers advisers, they call them introducers. The subtlety is as an introducer, once you have introduced the client the banks say ‘They’re our client, not yours’, and that's an absolute and total myth. In my experience in the industry, which goes back to 1997, the reason why people come to a broker is because they don’t get any service from the banks, particularly after the fact.”
McMenamin is currently with aggregator Connective
, and says he moved to the aggregator because it is the only one which offers the option of trail portability.
“That’s the reason why I moved to Connective, and I still have three or four books with other aggregators that I can’t move, and that’s an issue because in a number of cases I’m being charged much higher fees than what Connective charge me and I’m not getting any services whatsoever - they’re just taking money and all they do is put what’s leftover into my bank account.”
Though McMenamin supports Connective’s policy, he points out that trail portability with the aggregator is still subject to lender consent.
“Connective have said that but I’ve said that particularly the majors won’t have a bar of it, they just say it’s all too much paperwork, we’re not going to do that - and the funny thing about it is these same lenders are the same that will do it for the financial planners!”
Sale, however, says the financial planning sector would be better off following the mortgage broking model.
“It’s an absolute disaster! It’s just too much of a drama to change all the trail over because under the wealth side every single one of those clients has to be contacted and provided a letter and the list goes on. It’s really not an efficient way to do things and there’s no reason why the trail book cannot stay with the aggregator that the loan was written under.
“The amount of times direct writers changed aggregators - I think on average it’s a minimum of two, some of them are three and four - can you imagine? The banks would say ‘Go get stuffed!’ For the lenders it would be administrative nightmare!”
Sale also adds that clawbacks further complicate the issue, and says provided aggregators are not charging additional fees or double-dipping, and are still paying trail as per the original agreement, trail should remain with the original aggregator.
She also refutes the idea that the inability to transfer trail limits brokers’ ability to negotiate with aggregators and therefore restricts competition.
“It should be on a level playing field. Why should someone with a big trail book be able to do it while someone with a small trail book couldn’t?... We should keep ticking along with what we have now - as long as the aggregators don’t get greedy and start piling on all these other unnecessary and stupid fees - that’s just plain greedy.”
“With some of the really big broker aggregator groups now they’re all just trying to attack each other’s’ book, so to talk about competition I’ve got one great big slice of advice for any aggregator out there: Go and be innovative and think of other ways of getting new people into the market instead of pillaging each other’s database!”
all declined to comment on the issue.