How much brokerage???

Discussion in 'Property Finance' started by qak, 19th Nov, 2018.

Join Australia's most dynamic and respected property investment community
  1. qak

    qak Well-Known Member

    Joined:
    1st Jun, 2017
    Posts:
    541
    Location:
    Sydney
    Apparently at the RC today CBA said the top 200 of the brokers they pay earn up to $2.5m

    Top 200 mortgage brokers earning up to $2.5 million, royal commission hears: as it happened

    While they could have worded that better (ie I could interpret that as one broker earns that much, then there's lots over $2m ... or maybe the rest of the top 200 earn $10,000 each) - it's pretty unclear; are there any stats on broker income? I am assuming this is at an individual broker level which may not be right either.
     
  2. qak

    qak Well-Known Member

    Joined:
    1st Jun, 2017
    Posts:
    541
    Location:
    Sydney
    I just found another link which said Matt Comyn recalled there were about 1300 brokers earning over $1m and the 200 brokers earn about $2.5m.
     
  3. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

    Joined:
    18th Jun, 2015
    Posts:
    19,064
    Location:
    Remote
    What does this even mean? A team of 13 brokers under one guy who earns $1mil or 1300 individuals earning that?

    Keep in mind that is before costs.

    Believe it or not many brokers do earn more than brain surgeons.
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    4,098
    Location:
    Melbourne, Nationwide
    Define 'Broker' in this context.

    There is no chance that this is based on individual brokers. The average individual broker earns about $120k before expenses and about $80k after expenses (Source MFAA study into broker remuneration 2016).

    It's conceivable that an individual broker could earn $2.5M (with an enormous amount of help), but not 200 of them. 1300 breaking the $1M income mark is total rubbish. There are certainly broker businesses that bring in that kind of revenue, but they have a lot of brokers working for them.

    Then there's the cost of support staff, compliance, sales & marketing, etc. Even in a small business like mine (1 broker and some support staff), the running costs run to hundreds of thousands of dollars and I don't even come close to $1M in revenue.

    In 2016 the MFAA conducted a fairly comprehensive review of broker income. After costs, the average broker earned less than $80k. If you think brokers earn easy money, feel free to give it a go.


    The other thing to consider is that an executive level, the CBA would rather do without brokers. They'll give it any sort of spin they can to undermine brokers and put 95% of us out of business. The reason is simple. Brokers contribute over 55% of all loans written. Without brokers, over 50% of that figure would end up directly in CBA branches, massively increasing the CBAs market share and eliminating competition. This directly contributes to increasing interest rates and other costs to consumers, all to the CBAs profits.

    Anything said in the Royal Commission by the CBA (and Westpac IMO) about broker remuneration should keep in mind that they would be the biggest beneficiaries of fewer brokers.
     
    Last edited: 19th Nov, 2018
    Eric Wu, David Shih, albanga and 4 others like this.
  5. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,696
    Location:
    Melbourne
    I’d say they were broker groups. That is brokers who employ loan writers and other staff.

    It’d be pretty hard to earn that much as a sole trader.

    If the average loan is $500k and you did 400 loans you’d be earning circa $1.3m. At an average of 20 hours per loan means that’s 8000 hours or 200 weeks of work.

    So it’s more likely a team of at least 5 people working for those sort of numbers.
     
    Eric Wu, Lindsay_W, albanga and 2 others like this.
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    5,150
    Location:
    Perth WA
    My average loan is more like $250k I reckon. So you could potentially double the amount of loans and staff to get the same numbers. Outside of Sydney and Melbourne there'd be very few earning anywhere near that, I'd suggest.
     
    tobe likes this.
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    4,098
    Location:
    Melbourne, Nationwide
    I was at a conference last week. To attend, brokers need to be settling a certain volume of loans which puts them into the top 5%-8%.

    On the bus from the airport, two guys were talking, "We settled $150M in loans last year!" quickly followed by, "I've got 10 brokers working for me."

    Speaking with a number of attendees, I quickly realised that on a per broker basis, many of these businesses were only doing fairly modest figures.
     
    albanga likes this.
  8. albanga

    albanga Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,689
    Location:
    Melbourne
    I would be interested to know if the brokers on here would continue running their business if the RC does introduce fee for service?

    I know the argument is that the banks will do the same (great outcome for customers.....) but I don’t buy that for a second. Banks will very quickly offer in-branch rebates or packages to offset that cost.

    I know brokers offer a far greater value proposition than banks especially you amazing PC investment brokers. But regardless I don’t think any of you can argue that your business will take a hit. Even if it’s 15% based on Peters 80k figure it’s a 68k income. You could earn that with significant less work and stress as a PAYG in most jobs.
     
    Lindsay_W and Morgs like this.
  9. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

    Joined:
    18th Jun, 2015
    Posts:
    19,064
    Location:
    Remote
    I have been charging an upfront fee for about 5 years now for loan clients and it works well - but it is a small amount, if commissions ceased I don't think clients would willing to pay the same amount as the commissions are now.
     
    Morgs likes this.
  10. Morgs

    Morgs Well-Known Member

    Joined:
    7th Dec, 2017
    Posts:
    277
    Location:
    Sydney NSW
    Agreed I don't think it would be something palatable for the consumer & it would just become another point of tension for channel conflict between lender and broker.

    That RC session was pretty disappointing. Completely political from CBA. Shows utter contempt for brokers by saying they add no value. Granted, destroying the 3rd party channel would work well in their favour.
     
    Danny370z and Lindsay_W like this.
  11. albanga

    albanga Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,689
    Location:
    Melbourne
    But all due respect Terry you are also a qualified taxation and legal advisor which surpasses what advice most brokers can give.
     
    Terry_w likes this.
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    4,098
    Location:
    Melbourne, Nationwide
    @albanga a year or two ago on this forum I floated the idea of a $300 fee for pre-approvals, with 110% of that fee being refunded when a loan settled. This was due to about 60% of pre-approvals not proceeding, despite the broker doing 90% of the work for a full approval.

    The result was overwhelmingly negative. People simply don't want to pay brokers when the banks will do it for nothing. Certainly people appreciate the advice, expertise and options that brokers present, but they're not willing to pay for it. That includes members most of this forum.

    A fee for service for mortgage brokers would mean 95% of brokers are out of business, or a radical change to the service provided would be required. That likely includes myself and most brokers on this forum.

    Most people would then simply go to the bank they've always used. The two biggest banks are CBA and Westpac. Coincidentally they're the ones pushing the hardest for this remuneration model.

    The lenders to suffer the most would be the smaller lenders. The ones that bring actual competition to the banks. Some of the very small lenders would be out of business altogether.

    With reduced competition, the remaining lenders would slowly increase interest rates and fees. It's been suggested that mortgage brokers are responsible for a 3% reduction in interest rates.
     
    Eric Wu, inertia and albanga like this.
  13. MC1

    MC1 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    82
    Location:
    Melbourne
    Exactly
     
  14. miximitosis

    miximitosis Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    182
    Location:
    QLD
    I think my favourite bit was when asked what brokers do to earn their trail Mr Comyn answered "I think they would be limited, Commissioner" followed by Mr Hayne asking "Well, limited or none?" to which Comyn replied "Much closer to none".

    Is that why every year I review clients existing facility, lodge pricing requests and often do small top ups for no additional commission? Surely you would know that Mr Comyn seen as CBA pushes this sort of work back to the broker?

    The true agenda of CBA and WBC couldn't be any clearer. Although my hopes are fading as each round of hearings goes on, let's hope the Commissioner is aware of this.
     
  15. MC1

    MC1 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    82
    Location:
    Melbourne
    The Viewing at the RC yesterday was cringe worthy. This will not only be bad for brokers but consumers as well. The big 4 will have free reign.

    The CBA exec had me furious. I will not be placing any loans with CBA from this point.
    Some would say that I would be in breach as CBA could offer best outcomes for my clients and I would then be placing them into wrong products.

    I would reply that I have never been in a postion in many years where I could not obtain a product better than or equal to than CBA.

    If I client really wants CBA they can arrange through another source.
     
  16. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,394
    Location:
    Canberra, Brisbane and Sunshine Coast
    As Tobe mentioned - it's likely to be broker groups/businesses (which is still an amazing amount of volume).

    For an individual broker to earn $2.5m in a year they'd need to write around $400m in loan volumes over the year.

    Whilst there's some superstars out there - there's no way that 200 brokers are writing that much individually.

    Cheers

    Jamie
     
  17. miximitosis

    miximitosis Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    182
    Location:
    QLD
    The blatant hypocrisy really upsets me at times.

    Brokers can't be trusted to do the right thing by their clients because their income is attached to loan size. However Banks have proven time and time again that poor culture and a 'Sales above all else' culture exists yet are able to make a profit based on their net interest margin? I.e. Profits based on loan size? Aren't all bankers inherently conflicted with good consumer outcomes as well then?
     
  18. Marty McDonald

    Marty McDonald Mortgage broker Business Member

    Joined:
    22nd Jun, 2015
    Posts:
    436
    Location:
    Sydney North Shore and Norther beaches
    What a crock of sh&te. Turnover is not net income. Many "top" brokers have 5 or more support staff, CDB offices, work cars etc etc. Give me a break.

    Very few individual brokers id say less than 50 nationally settle more than say $90M which is what you would have to settle with a mature book of $300M to achieve a > $1M turnover. You cant run a biz that size without at least 3-4 support staff. So maybe those brokers are earning big $ but they are at the end of a very steep bell curve I can assure you. Many more earning average salaries.

    1300 brokers earning over $1M? that is 7% of brokers? No way ...
     
    Eric Wu, Jamie Moore and Lindsay_W like this.
  19. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,696
    Location:
    Melbourne
    The cba ceo was so smug yesterday. After admitting to dodgy sales practices and defending banker bonuses and commissions he drops brokers under the bus. The worse thing was the way Hayne and Orr just ate it up.
     
  20. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    231
    Location:
    QLD
    Australian Banks, especially the 'Big 4', need more competition not less - I hope someone/anyone on the RC recognises this
     
    Terry_w likes this.