The Royal Commission hearings have now concluded and in the final round CBA CEO Matt Comyn tried to crush mortgage brokers.
He claimed that once a loan settles we tend to forget about clients, and therefore that the current remuneration structure – where banks pay an upfront as well as an ongoing commission to brokers, at no cost to the client – should be overhauled.
Comyns’ proposal to eliminate trail commissions, and for broker remuneration to reduce by over 50%, would send many mortgage brokers out of business. As a stronger performing business Long Property will be fine irrespective of any changes, but thankfully the non-major banks (including Macquarie), believe Comyn is wrong.
I’m strongly opposed to Comyns’ proposal, and it should be seen for what it’s worth – completely self serving. Make no mistake about it, whatever market share mortgage brokers lose, the big banks will win. The big-4 banks shouldn’t get a free kick from the Royal Commission, it was primarily established to investigate their misconduct!
Trail commissions ‘sound’ bad, but don’t forget it typically takes a bank over 12 months to start making money from a new mortgage borrower (eventually their net interest margin makes up for the loan ‘set up’ costs), so even just from this perspective it doesn’t make sense for brokers to get paid in one lump sum upfront.
Commissions are also in the banks’ best interest because otherwise they have to build more branches and employ more staff to service the needs of borrowers (not just new loans but also admin/ maintenance, reviews, client services etc.). Every week I have clients telling me they previously went direct to a bank and now they’ve got no relationship because the person they dealt with never re-contacted them, and now they apparently no longer work there.
No model is perfect. In a no-trail world brokers have to constantly ‘hunt’ for their next deal, which creates the wrong behaviour/ outcomes, and churn – where banks lose clients – naturally increases. When trail commissions were eliminated from the mortgage broking industry in New Zealand average loan terms dropped from ~4 years to 2 years, then the decision was made for trail commissions to be reintroduced.
With no-trail the banks lose because they lose clients before they make money, and borrowers lose because competition is eliminated, and conflicts potentially worsen.
In the current model brokers are reliant on one simple thing… happy clients. We rarely get ‘walk-ins’, we grow our businesses either because a client has a good experience and tells a friend, or because a referral partner knows we’ll do a good job.
Our trail commission is at no cost to borrowers (fees/rates/charges are exactly the same if you go to any bank ‘direct’), and it allows us to provide the ongoing support that we do.
We’re ‘on-call’ for clients 24/7, most meetings are conducted outside regular business hours, and beyond settlement we keep clients informed with what’s happening in the property and finance markets. We also assist with loan maintenance and restructuring, and also we conduct annual reviews, to ensure clients remain in the most suitable products, and that they are making the most of the opportunities available to them.
If we don’t do this work and if we don’t get positive word of mouth referrals then we go out of business. We don’t have pay checks to fall back on.
If the current system was broken then brokers would not have grown from originating 25% of all loans, to now over 55%. The data doesn’t lie.
Brokers deliver more choice and better service. Halve our income and there will just be less of us, so borrowers would get less choice and worse service (read higher fees/rates/charges).
This would be a terribly disappointing outcome of the Royal Commission.
Compare the views of CBA against those of Nicholas Moore, 10 year CEO of Macquarie. In the final round of the Royal Commission Moore acknowledged the role mortgage brokers play in bringing to light the different offers available to consumers. 90% of Macquarie loans are originated by mortgage brokers. Go figure.
