Govt plans for Broker Commissions

Discussion in 'Loans & Mortgage Brokers' started by Paul@PAS, 11th Dec, 2017.

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  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Banks, mortgage brokers pledge to reform home loan commissions

    All fairly tame...Fees may be limited to the funds used to buy a home not actual borrowing if the loan sees equity credited to an offset. I have questions about how finance used to fund business issues, trusts and other forms for finance may operate ?
     
  2. thatbum

    thatbum Well-Known Member

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    Normally I'm on board the consumer protection train, but I thought it was a bit over the top to restrict commissions from additional funds that might go into an offset.

    It is part of the work done after all.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Imagine someone comes to me for a $100,000 loan when they have an property worth $1mil. I could convince them to borrow $800,000 and put $700k in an offset. I would increase my commission by 8 x.
     
  4. thatbum

    thatbum Well-Known Member

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    True, but that same line of reasoning can be extended to a lot of different service based professionals - that inherent conflict of interest that comes from charging for our time and expertise.

    At least in a mortgage broker's case, it usually doesn't directly cost the client anything if the banks are happy to pay the commissions.
     
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  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The review of broker remuneration has been an ongoing for over a year now. It's mostly been driver by the industry itself, rather than let the government regulate to death like they did the financial planning sector.

    Generally speaking, I'm fine with the measures being put in place. I've never been the recipient of any significant incentive from lenders. Whilst I have received the odd 'bonus' payment, it's never been anticipated, it's always been incidental.

    The only thing I do have a problem with is being paid on loan drawn rather than the loan funded. It basically means that brokers may not be paid for equity releases. I certainly agree that larger than necessary loans should be discouraged, but this measure will mean many brokers will simply write loans so they're cross collateralised, or structured with sub-optimal tax outcomes.

    I've raised this issue with those that came up with the proposal (one of the Big 4 banks), but have yet to receive a reply about how brokers might be paid fairly without compromising good advice. The original study and recommendations that lead to this were well intentioned, but there will be negative ramifications to borrowers as a result.

    The other measures being put in place will have little impact on anyone (brokers and consumers alike), but I don't think there was every a real problem in this field anyway, only the perception the possibility of a problem.
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    But one would only do that where there was a defined use for the cash as specified iin the Statement of Credit advice and client need analysis.

    Just as Some Medicos overservice and some legal people overbill, some brokers will do exactly what you have said with no defined client outcome

    We do LOTS of 100 % cash out for share investment, under the guidance of a planner, where the planner may not want to invest the funds right now.

    Frankly, I dont really care too much, we will adjust as we have always done.


    ta

    rolf
     
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  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    This is a very good point. Lenders already have it within their ability to regulate the use of surplus funds. They already ask what surplus funds will be used for and often require reasonably solid evidence of the purpose. In some cases they withhold the funds until certain conditions have been met.
     
  8. DaveM

    DaveM Well-Known Member

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    The real question is how this will affect the sales of german cars and laptops?
     
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    As u say, and I paraphrase

    we need to be seen to be doing the right thing, even when substantively, there isnt a real problem.


    ta
    rolf
     
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  10. Otie

    Otie Well-Known Member

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    I would prefer to see brokers charge a flat rate for their service direct to clients, not paid from banks. I would have greater trust that the broker was working in my best interest and offering me the best products for my situation and not just exposing me to lenders that work well for them. Id pay the fee.
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I guess it depends on what fee amount may be appropriate in the eye of the beholder.

    Fee for service is good in concept, reality is that few are willing to pay for what the service actually costs, plus a margin for running a business and the risk involved.

    Financial planning is a super duper good example.

    Those that need the service the most can least afford it...................

    The major banks are PRAYING that broking ends up the same.

    ta
    rolf
     
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  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    And if you walked into Abank how would they charge you for biased advice and services?
     
  13. Eric Wu

    Eric Wu Well-Known Member Business Member

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    a manipulation from ppl in power to please some ill informed consumers to be seen doing something for good, really?
     
  14. Otie

    Otie Well-Known Member

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    As they do now. Interest and fees.
     
  15. Tom Simpson

    Tom Simpson Well-Known Member

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    Perhaps you're the exception but for most people I think this is similar to the "buy Australian" argument, yet I still find myself going for cheaper brands. We're talking 30 cents here so extrapolate that tendency to when it comes time to spend thousands of dollars. Any old bank will do as long as it's free...
     
  16. Otie

    Otie Well-Known Member

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    For some people yes any old bank will do but for people wanting to milk as much servicing as they can they won’t mind paying a broker.
     
  17. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I'm curious, how much would you actually be willing to pay? ;)

    Some might be willing to pay $1k, but that wouldn't even cover my operating costs, let along put food on the table. Most people have their own idea of what's a fair income, but very few have any real idea of what it really costs a business to deliver a fair pay to an individual in exchange for a fair amount of work.

    Another problem is that the pool of people trying to, "Milk as much servicing as they can", is fairly limited. It's a large percentage of the Property Chat population, but in the general population the vast majority would simply go the bank, get accepted or rejected and look no further.

    Make no mistake, a fee for service model would destroy over 95% of the broker industry. This would leave consumers with fewer choices and no decent sources of advice. With less third party competition, interest rates would increase fairly quickly.

    ASIC has rejected the fee for service model as they know it would be a terrible outcome for borrowers. Certainly there is some improvements to be made, but the existing model does work as a win-win for brokers and consumers.
     
  18. Blacky

    Blacky Well-Known Member

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    And the banks.
    Banks actually like the broker model as it reduces costs.
    Although they would love to cut the amount paid to save more they can’t go too far without disruption and having the reverse impact.

    Blacky
     
  19. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    With the way servicing calcs are going people will have to lower the expectations to a Camry or in many cases stick with what they got.

    There was nothing to see so they made something up to substantiate the time, effort, $$$ and stress caused to everyone but them.

    It is a case of it isnt broken so why try and fix it?

    This is the outcome from what I can see, more work for less remuneration.
     
  20. Redom

    Redom Mortgage Broker Business Plus Member

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    Most proposals look fair & no real surprises.

    Glad the lender fee for service idea was dropped. I wonder what proposal 1 looks like in reality. More clarity required i guess that will come out next year.

    If its simply an issue associated around timing of payments to broker, it doesn't really have too much of an impact on brokers overall remuneration. If its just measured at settlement and again shortly after, the banks could make a relative substantial cost saving & broker remuneration drop (equity releases not really paid, unless immediately used).

    In general, equity releases for risk mitigation purposes won't be paid anymore, but that seems fair enough as banks don't actually gain any value out of these monetarily, so one can make an argument that their agents shouldn't really be paid (even if they've done work).