ACCC finds that the Cartel of the larger lenders seems to be just that

I'm not sure what the right model is, though I was surprised by these figures which came out of the RC. I interpreted this to be CBA only:

I am using and would continue to use broking services, though these figures look very unhealthy as in some form this must be ultimately payed for by the consumer.

Royal commission hears top 200 mortgage brokers earning up to $2.5m

 

I can assure you that the figures reported simply aren't true. Whilst there are mortgage broking businesses with million dollar plus gross income figures, very few individual brokers gross more than $1M and the (very few) that do will have significant business expenses to achieve that level of volume. The average broker's income after expenses is less than $90k (read Rolfs article above).

The next time you visit your mortgage broker's office, you might want to think about what it costs to run that office. Then visit a branch. As yourself what is the cost of keeping that branch open? Which has more open space, which has more idle staff? Which has the larger marketing and brand awareness budgets? It all costs money to operate which is ultimately paid for by the consumer.

A recent study by Deloitte found that the cost of mortgage brokers is significantly less that of branches for the same result. If you have any doubt of this, compare Macquarie & INGs rates (heavily reliant on mortgage brokers and no branches) to that of the CBA & Westpac (least reliant on mortgage brokers with the largest branch networks).

Finally ask yourself who benefits most from those statements? Cutting brokers income will mean that many (probably most) will cease operation. Without the competition from mortgage brokers, many consumers are going to end up at the bank with the largest branch network. The person that made these comments just happens to be the CEO of that same bank.

 

great write up @Peter_Tersteeg

often I think miss informed public is more dangerous than the instigators. miss informed public are manipulated to "believe" what they "see or hear" with the specifically and carefully chosen "evidences" by the instigators, and take it as "Fact" and then act accordingly.

( hi @JLK , pls don't take it personally, I am not referring to you with my above comment.)

 

Brokers with strong businesses can earn incomes well beyond that of many bank workers (and some are former bank workers). I believe multi million dollar quotes etc are misleading and an exception. However it not unusual for incomes in the $300K + range. Thats a fair income in any measure.

And some of these have minor admin overheads. Some pay rent. And larger ones may even employ admin support staff but that tends to support a high turnover (and a very high income). There are few barriers to entry and qualifications and training poses few obstacles. Its not like studying medicine or law. Ongoing costs to operate and maintain a broking business need not be significant. The relatively easy access to a high income means more and more people have sought to join the industry. As fewer loans are being written a larger pool of brokers are seeking income from a reducing pool of borrowers. And lenders who are questioning the business model. Consumers are paying for it in an inflated cost of borrowing. But ASIC has to ensure that the banks dont just cut the fees they pay and the consumer saves nothing. Banks will do that and the harm sits with the consumer.

I suspect the lenders want to ensure the fees they pay reflect the effort and outcomes involved with a profit included. There is a fair argument for that. But who will find that point ? Lenders must be looking at the fees they pay and questioning why the amount they pay is so high. And trailing fees may also be questioned as they dont seem to reflect a fee for any service. And a fee that removes the inflation indexing has merits. eg As property values rose the fee brokers earned rose at the same pace. Why should that occur ? Its also encourages excessive borrowing. Thats a cost the consumer ends up paying and doesnt reflect true additional work.

There would seem to be an interest in determining a level of remuneration that lenders and consumers may see as fair value. And whether a loan is $120K or $1m the amount of core work is largely similar but not necessarily identical either (albeit it now takes a LOT of admin to get loans approved) and suggestions of a "fee" rather than a fee that is incremental with the value of the borrowing has some basis of logic. Should it be capped ?

Im not a broker but many on PC are, so it has to be a sensitive issue. Its pretty well assured that the lenders want to pay less and ASIC doesnt oppose the idea of consumers benefiting from brokers but they must also see the high cost as a burden ultimately paid by the consumer in the rate paid. The idea that consumers see a cost makes sense but consumers wont have any idea how long it takes to do the work they do. Consumers dont want to pay a cent and lenders want to avoid paying too. ASIC know that but they cant set the fee basis either. Brokers lack negotiating power and lenders could harm the industry and harm consumers as a result. And the lenders cant collude and set prices can they ?? Its like asking Coles to set the price of milk paid to farmers.

A model that allows brokers to compete may even be good for consumers. Or could be a terrible outcome if some cut price king kills off the good players in the industry but using a cheap outsourced model to buy a robo-business at the expense of quality advice and service

Just as travel agents, financial advisers, insurance agents etc dont get to clip the ticket like they used to, the mortgage industry will face changes. And it will probably weed out some but the regulators probably want that.

 

I think where the problem lies is not with the brokers themselves -as so far they haven’t had much of a voice.

The banks who are arguing have vested interests. As someone above mentioned -CBA is pushing for change.
They have the most to win by changing the model and disrupting the industry, cleaning out a few brokers, and pushing the model to more of a ‘direct’ banking model.
On the other hand Mac bank is pushing to keep the status quo. They don’t have a branch network and rely on the brokers to ‘face’ their customers for them.

We need to ask ourselves why banks pay brokers? Why not move to a few (paid by the customer) model.
The fact is that generating a loan through a broker is far cheaper for the bank.

Personally I think it gives the uninformed consumer (the majority of the population) a far better chance of being served well - and getting a result they are looking for.

Blacky

 

original ACCC link
Lack of transparency stifles mortgage price competition