There has been a lot in the media about scrapping commissions to mortgage brokers. The Sydney Morning Herald reports up-front commissions paid by banks to mortgage brokers, which are typically worth thousands of dollars, should be abolished.
Instead, it should be a fixed fee. Across the board.
I have a few problems with that because not all mortgage brokers were created equal. Most of us work out butts off to get the best deal for our client in securing the loan but also for the life of the loan. My work often goes beyond that one-off commission I am paid because I want my clients to be happy and financially better off.
Size does matter
The loan size does not dictate the amount of work and complexity of someone’s situation. I have done $150k loans that have been more work and effort than a $500k loan but I would not serve my client any differently based on the size of their loan. I get paid $675 for a $150k loan, and that doesn’t cover the cost of the amount of effort involved.
How would a fixed fee be fair to mortgage brokers?
Why would it be different? It’s rare to get a big loan so my view is when I do it’s a bonus from a monetary perspective but when I do get a big one, it is usually incredibly complicated and so the time is relative.
On the other hand, a $200k deal takes me more time, so I should get paid more? It works in swings and merry go rounds as far as I am concerned. Don’t forget that each broker has to then pay their franchise or aggregation group a percentage of the fee they make, this can be between 10% – 30%, that’s a pretty significant chunk.
Working with self-employed clients does take more time – there are so many more facets to getting a loan for this group than someone employed. I am all about fair pay for work delivered. So why wouldn’t a mortgage broker get paid more if they have invested hours and hours to help someone self-employed get a loan.
Trail commissions and aggregator banks
This is the bank’s way of paying brokers to provide ongoing service to the client, to ensure they do the right thing by the client. This is VITAL in my business. I am known for the awesome customer service I provide.
However, I do agree on the views around soft dollar commissions. Banks are paying bonus commissions based on volume to them; I think this is wrong and encourages the wrong behaviour. That needs to be abolished.
I also have concerns where aggregator groups are owned by banks. As a broker, I want to provide full independence and that is why I chose to work with Smartline. Many aggregators are owned by NAB or CBA. I want full independence.
Rock and a hard place
It is going to be impossible to find a solution that is fair and equitable for all deals because each deal is so variant.
We are in a world right now, and have been so for the last 2 years, where it has become more and more difficult to get loans. The investment space is becoming even more complicated. Being a broker in today’s market is tougher than ever; we have to work harder to find solutions as lenders have become very specific about the type of business they want so they can balance their portfolios to fit in with new APRA and ASIC requirements.
Mortgage brokers are important
We are more important than ever before especially as a guide in a complicated market.
As a consumer – having access to a broker at no cost is terrific (the bank pays the commission).
As a bank, a broker brings them business, which saves them money on marketing costs; the commission is like a marketing/service cost to them.
Over 53% of loans are now done through brokers and this is on the increase. Brokers are a great solution to the customer, it saves them time and can save them a lot of money if they are working with the right broker.
What is the real focus?
The focus should be on, and should ALWAYS be on, what is best for our consumers, the bank’s customers. A broker saves them a lot of time. Brokers know where to place deals and which banks have an appetite for types of business. As a customer, this is an incredible offer – free service with their best interest at the forefront. The offer is often better going through a broker than direct to the bank, the commission paid has no impact to the consumer.
It’s a no brainer to me.
If you’d like to talk about how I can look after you, contact me firstname.lastname@example.org