05 Mar 2019

The mortgage broking industry has been left contemplating its future after several proposals by the Royal Commission on how brokers should be paid. 
I’m jumping on the #dontkillcompetition train this week and getting behind an industry that could virtually disappear, if these changes come into play. Scrapping commissions will force a wave of brokers out of the industry, limit consumers access to credit, and boost big bank dominance, killing much needed competition.

What worries me the most, is that consumers are being led to believe that they will somehow benefit from all of this, and that couldn’t be further from the truth.
Firstly, let’s set the record straight. There has been so much focus on a broker’s ‘unfair’ earnings.

The average broker in WA actually earns around $65,000… (a little more if we look at Australian averages) but nevertheless, we’re not talking exorbitant salaries here. Brokers are not living the rock-star lifestyle everyone seems to think they are.

Are there exceptions? Sure…  Are there also rogue brokers doing the wrong thing? Of course there are… There’re also dodgy real estate agents, accountants, pollies and even doctors. No industry is immune to dishonesty.  But I’m not talking about a couple of rogue players here, I’m talking about the majority.

Let me be clear…  I’m all for brokers being made more accountable for the loan applications they submit. There’s a need for both brokers and banks to be more diligent when considering the needs of borrowers and their ability to make repayments. But I can’t make sense of the recommendations around up-front fees and the elimination of trail payments, because a few brokers have done the wrong thing.

Aussies enjoy having the freedom of choice, and this is clear when you consider that 60% of all Australians who get a loan to buy a house do so through a mortgage broker. Until recently, it’s been a simple process benefiting all parties.  Broker compares home loan market. Client receives a great home loan product. Client pays nothing for the service.  Bank gets a 25+ year customer on a silver platter. Broker gets paid a commission and trail fee. Pretty simple and fair. What’s important to note also, is that the banks were the ones that introduced the idea of trail payments, and ever since, they’ve served a very important purpose…  to ensure service.

A good broker works hard for their trail by offering clients an ongoing service. There’s a lot of ground work done between loans that no one’s discussing…  Brokers spend hours on end comparing the home loan market for clients, looking at variations, crunching numbers and offering various scenarios. To suggest that they receive ‘money for nothing’ is actually false. More importantly, trail commissions exist for a very specific reason… to look after the client’s interest long-term.

If we eliminate trail payments, we’re essentially encouraging brokers to churn out loans, because that’s what they will need to do to earn a living. Without trails, brokers will be forced to encourage their clients to refinance to a new product at potentially no benefit to them, with the aim of being paid another up-front commission. That’s the kind of dishonesty I’m worried about.
Don’t forget… Most mortgage brokers are small businesses, who gain new business through referrals. If they don’t do the right thing by a client, that client won’t come back, and they certainly won’t refer to friends and family.  It’s in a broker’s absolute best interest to do the right thing by their clients and this is precisely why clients benefit from the service.

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