Is the mortgage broking industry rife with conflicts of interest??

I'm interested to hear what some of the brokers on this forum think about the article below.

Consumers using mortgage brokers end up with larger loans, says ASIC

cheers

 

I am not a broker but I am a customer. I have had excellent service from brokers. I find this statement incorrect in my experience:

Choice said the system was rigged to send more loans to the big banks and get consumers to borrow more, putting them under financial stress.​

I tell my broker: no big 4. I also check the deal and if it not good enough I send it back. Its not that hard. I also borrow what I can afford.

My point is, if a consumer ends up with a loan with a big bank that is more than they can afford, how much responsibility should the broker take and how much responsibility should the customer take? People need to do some due diligence. After all it is hundreds of thousands of dollars they are borrowing.

I support ASIC investigating the industry and cleaning it up but I don't agree with Choice putting all this back on the consumer. Consumers need to take some responsibility for what they are signing up for.

 

Its the people who are not capable of doing due diligence who need protecting.

It seems that the mortgage brokers on this forum have gone quiet. Why have no brokers replied???

 

I do understand this argument. Stories of pensioners going to a bank and being sold investment products that lose all their money sicken me.

I am sure there are brokers who pick products that will benefit the broker and not the customer. I am not sure what can be done about this.

As for no brokers replying, this is being discussed in a number of threads.

ASIC broker remuneration comments?

 

Probably because we don't feel there's much to be gained by engaging in this discussion.

To answer the question. There is the potential for a conflict interest on numerous lenders. The ASIC report identifies this. What the ASIC report does not identify is how often it occurs or even if it has a negative outcome for consumer.

I'd suggest that brokers that do a significant amount of repeat business or rely on referrals are generally fairly honest and try to put their clients interests first.

 

What sort of conflict of interest?

I have heard about groups of brokers that send all loans to CBA just because they want to maintain their diamond status which helps with quick assessments.

That is an example of a conflict.

I don't really think there is much conflict in relation to commission as most lenders offer very similar commissions. One exception is the white label products as the broker can up it or lower it.

 

Its the weekend....

 

Of course there are conflicts of interest present, we're being paid by the institution we place the client with.

We have a fiduciary responsibility however to place the clients interests above our own.

If a broker pressured a client to take out a larger loan than necessary or is affordable then they are acting irresponsibly and not in the best interest of the client.

The difference in commission between lenders is negligible at best. I place my clients where the loan will get approved at the amount the client and I have discussed is correct for their needs.

It's difficult to look at someone's loan from the outside and say "that's not in their best interests" when you have no idea what their situation is/was at the time of application.

You've also got to ask who are the people more likely to use a broker? My clients are mostly well informed and capable of understanding finances and making their own decisions. They potentially put in place more elaborate structures than Joe Blogs who has banked with CBA since he had a dollarmite account in kindergarten.

The suggestion the ASIC review made that soft benefits such as faster approval times was a conflict of interest shows a lack of understanding about who's interest a speedy approval serves. I've never had a client say to me "no rush Tom, if you can get the bank to delay approval times I'd be much obliged".

There were however some prudent and worthy suggestions in there which I'd like to see implemented. It'll be interesting to see which ones are picked up by the regulators.

 

There are some theoretical conflicts of interest sure.

Yes, also broker loans may be larger with larger offset balances. Thats likely a result of brokers providing advice in the consumers individual interests ahead of the financial system as a whole. If they want this fixed, its probably worth aligning tax systems etc to suit. Customers aren't putting $$ into offsets purely because brokers tell them to, its largely part of their risk management, wealth creation strategies etc (i.e. in customers interest) and they're allowed to do so. Purely, in most circumstances, this result enhances a consumers outcome, not diminishes it.

IMO basic 'self interest' for brokers helps align consumer outcomes neatly and is part of the reason why the industry is a success and has such a big take up rate in Australia. Its in our best interests as businesspeople, workers, etc - to have a long term happy client. Most operators understand this. That usually means finding an outcome, product, service that suits and enhances the consumers position/education/results.

There are some things around the edges that create greater conflicts (e.g. brokers who sell property, etc). Soft incentives and bonus comms should probably go - there's no doubt that these work to attract business and do distort transparent remuneration incentives.

 

The correct answer is that of course there is a conflict of interest - the broker is paid on getting deals done full stop. Irrespective of whether the loan is in the clients interest, and there is no fiduciary obligation to ensure otherwise. Therefore a conflict of interest interest.

All of the people above are arguing that it is managed, mitigated, disclosed etc.

 

conflict of interest
noun
noun: conflict of interest; plural noun: conflicts of interest

1. a situation in which the concerns or aims of two different parties are incompatible.

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The client wants a loan to buy a property, the broker secures the loan for the client. There is no conflict here because the aims of the two parties are compatible.

There is the potential for conflict of interest where the broker does not act in the best interests of the client but it does not follow that every loan written by a broker is subject to a conflict of interest.

 

Good point, do we really think if all brokers disappeared overnight it would be a better outcome for consumers? It would probably mean a huge consolidation to banks with a physical presence as it's uneconomical for smaller banks to hire sales staff to provide that service as the don't have the customer density.

I would also point out that your bank manager is going to be paid a bonus for loans settled. How many times have you gone into a bank and been told you can get a better deal down the road? Is that not a conflict of interest?

 

I think it is ridiculous to call out finance broking for conflicts of interest. The word "broker" clearly lets the clients know the remuneration model for the consumer.

Their are clearly many more advisor's out their with a conflicted remuneration model that need focus.

 

Please don't!

A bank manager can only push their own bank's products = automatic conflict of interest.

 

Any person in any shop makes money selling to you - does this cause a conflict of interest because they get paid if they're successful?

If I sell you a gadget you need and pocket a profit from that, it's a great result all round. If I write you a loan that you need, and get paid to do so, that's also a great result.

If the gadget is crap and it breaks, the cost gets refunded and everyone is sad. The customer does not return.

If the loan is not what the client wants, it gets refinanced, the commission is clawed back and everyone is sad. The customer does not return.

I really don't see the difference. Everyone likes to be paid, and everyone likes to have a solution to their problem/need. It's a win win.

 

Choice can not be taken seriously.