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Aggregator head laments bank response to rem reform

by Charbel Kadib7 minute read
The Adviser

The head of a major aggregator has flagged issues associated with the conflicting methods used by lenders to calculate upfront commissions in response to “net of offset” reforms.

In an address at the LIXI Forum 2019, Connective director Mark Haron has noted the impact of contrasting remuneration policies adopted by the lenders off the back of the Combined Industry Forum’s move to limit the upfront commission paid to brokers to the amount drawn down by borrowers (net of offset).

Mr Haron said that some lenders had opted to withhold the payment of commission for additional funds arranged by a broker, which are utilised by a borrower after a pre-determined period post-settlement.

“Unfortunately, the way some banks across the market have adopted the payment process is that sometimes brokers don’t always see all the remuneration they probably deserved,” he said.

“We did say in some of our guidance on it that the banks should look to make additional payments as the funds are utilised down the track, but weve only seen that introduced across half the banks and its been introduced in very different ways.”

Mr Haron said that the disparity in the application of the CIF reforms had increased risks of “lender choice conflicts”, which could hinder compliance with the newly proposed best interests duty.

“It has caused a ‘lender choice conflict’ [where] brokers are thinking, ‘Well, my client is not going to use most of the funds until about six months, this lender is not going to pay me anything further after those initial payments, why would I take the loan there?’” he added.

“That will create a conflict with the best interests duty.”

The Connective director added that the industry is working to address the issue, but he said prospective reforms could not come from the CIF, with members “bound by competition law” and unable to collaborate to determine a standardised model for commission calculation.  

Mr Haron’s remarks follow the release of the Mortgage & Finance Association of Australia’s Industry Intelligence Service report, which revealed that, over the six months to March 2019, the national average annual gross value of commissions collected per broker dropped by 3 per cent when compared to the previous corresponding period, falling to a historic low of $128,709.

The decline was driven by a 10.6 per cent fall in the average upfront commission received by a broker, down from $75,604 to $67,554 – offset by a 6.9 per cent increase in the average annual gross trail commission received per broker, from $57,189 to $61,155.

Reductions in commission revenue have also prompted calls from both industry associations and aggregators for “fair and equitable” clawback arrangements.

Mr Haron and the Australian Finance Group’s head of industry and partnerships, Mark Hewitt, recently indicated that they would be lobbying for clawback reform during the consultation period for the federal government’s proposed best interests duty bill.

[Related: Broker commissions slide to historic low]

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Charbel Kadib

AUTHOR

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: Charbel.Kadib@momentummedia.com.au

Comments (13)

  • I totally agree. The CIF is a joke. The lenders had one aim when they participated and that was to reduce what they had to pay us. If we have a best interest duty that should ensure that these other rules are not required. Act in your clients best interest. Banks pay based on what is fair and reasonable on an objective basis. If you can't justify why you are doing cash out then the lender should be making a determination that the loan is unsuitable and therefore decline it. If the client has large amount of cash on their assets document why they are not utilising those funds in the application to the lender. If they make an assessment that the loan is suitable then they need to pay us for the loan. All CIF has done is create more conflicts then ever
    4
  • Whoever thought the Banks would be better of with this reform. My god how dumb are we everything done in this industry is not to benefit the broker but to benefit the bank. Who works for nothing these days BROKERS that's who. Get rid of claw backs get rid of this offset rubbish as generally we all do the right thing by our customers or do our very best yes we as an industry have some bad eggs but so do the Banks etc. Income is down it is harder make deals work it compliance costs are up who knew this some 17 rys ago when I joined .
    1
  • Wow! Who woulda thunk it...the banks see a way to take advantage of a recommendation that is supposed to create "better customer outcomes" to create "better lender outcomes" which in turn serves to caste aspersions on brokers (via that "conflict" twist) - AND the CIF - who created the whole mess are unable to do anything about it! What earth shattering news will happen next..."The Sun is to rise tomorrow morning....details at dawn".
    6
  • Recently completed a home loan for a Junior Dr who chose to purchase an owner occupied (2nd Home) and now rent out her former home as Investment (always her long term plan) both loans with same bank. Once the new owner occupied settled she transferred her existing offset off her former Owner Occupied to her new home. Net effect I'm paid nothing. I also have another 2 Dr's who have offset 4 home loans each year as they move around Australia furthering their specialist careers and accumulating property for long term wealth. There has got to be some clarity around this. Fair enough on the trail but if you do the work you should be paid upfront at least!
    5
    • 100% Agree Kate this is totally ridiculous. In a similar circumstance I recently asked my client to remove their 400K of available redraw funds to another account for a week or two to get past the stupid lender utilisation policies ( I then credited back the lost interest to them) out on an upfront that I will now be paid as I rightfully should be paid for doing all the work.

      As for banks such as Westpac and BOM with their come back and beg for your commission after 12 months - well they would never ever get this deal , not that I use them anyway!.

      This is the true reflection of how CIF actually represent Brokers; never have and never will.
      6
  • Too late the horse had already bolted - I would think that the vast majority of Broker feel let down by the CIF as to date all it has amounted to is less income for Brokers with no better outcomes to consumers, only more revenue for lenders.

    I am expecting a similar result for the is clawback debate as the Aggregator heads are walked over by the lenders, whilst happily drawing their salary out of the revenue that we generate for them.
    9
  • Maybe fee for service or flat fee does have merit then?
    -2
  • more work less money, sounds like a banking job lol
    2
  • remove the conflict: cancel your accreditation with that funder and compliance isn't an issue. you can only make recommendations on what you can provide.
    0
    • Not so with BID in the financial planning world, so we will need to see what the legislation looks like for us.
      0
  • Bin CIM and all our problems will be solved.
    1
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