While lenders indicate funding issues are a persistent challenge, there are promising signs that better days are ahead for mortgage brokers
When it comes to commissions, mortgage professionals haven’t exactly had it easy. Brokers took a significant hit during the GFC as lenders restructured remuneration packages and put the onus on businesses to increase the quality of applications to earn top dollar – in other words: more work, less pay. But four years later some industry stakeholders indicate the pendulum is starting to swing.
“We’ve actually found the trend over the last 12 months to be the other way. There have been movements here and there by a few of the lenders,” says Mark Hewitt, general manager AFG.
Hewitt points to Macquarie’s decision in early September to increase upfront commissions to 0.65% (from 0.60%) and trail commissions to 0.15% for years one to three, and 0.20% for year four onwards (up from a flat 0.15%).
“Brokers are our primary distribution channel and we take a partnership approach to these broker relationships, ensuring that we can help to support a sustainable and compelling third party distribution segment. Through the broking channel, we are focused on providing choice and competition to the market which we believe is the basis of a healthy mortgage industry, and we believe that our proposition provides appropriate value for the service provided by brokers,” says James Casey, head of mortgages product, Macquarie Bank.
Meanwhile, NAB Broker’s general manager for distribution, John Flavell says NAB is happy with their present commission structure, however, brokers will already be noticing the benefits of changes the bank 12 months ago.
“Brokers will see a change in commissions from us and they’ll see that on an ongoing basis. The first thing we did over the last 12 months is we gave all brokers a 4-star rating which means all brokers are paid a 65 basis point trail upfront. So through working with brokers we managed to gain some efficiencies that meant that we could give all brokers the benefit of that higher commission. So that’s a positive that we’ve seen.”
The other thing that brokers will see, according to Flavell, is the benefits of NAB Broker’s ramped trail structure.
“Every day 300-400 broker/client relationships hit that next milestone and brokers see the amount of trailing commission being paid increase by 5 basis points all the way up to 35 basis points. So everyday that takes place, which is good.”
Other major lenders seem content with their present commission structure. CBA’s executive general manager third party banking Kathy Cummings told MPA, Commonwealth Bank “has no immediate plans to change current broker remuneration”.
Tim Carroll, national partnership manager in the ANZ broker distribution team, echoed that statement telling MPA: “We regularly review how our mortgage business is structured - as we do with all areas of the bank. At the moment we are comfortable with our position in regard of broker commissions.”
And while Westpac’s general manager Tony MacRae acknowledged that funding costs remain challenging “given conditions in global wholesale funding markets and the competition for deposits,” he also indicated Westpac had “no current plans” to change its commission structure.
Mortgage Choice spokesperson Belinda Williamson says the aggregator is not anticipating any broad-based changes to commissions from major banks, however, she indicates a bump in remuneration may felt from other lenders.
“We do know that a number of second-tier lenders would very much like to be writing more volume and we would not be surprised to see some upward movement in their commission structures.”
In the interim, despite rising costs for brokers, Williamson says current remuneration is enough.
“While operational costs for brokers are increasing and increased commissions would be very welcome, the current levels - while challenging - are at least able to sustain the industry.”
DIY commissions
Aside from waiting and hoping for higher commissions, there are other ways for brokers to protect, and even boost their incomes.
Late last year, Connective launched flexible pricing for its white label product, which allows brokers to tailor product pricing around commission needs. For instance, an established brokerage, which may put greater value on annuity income from trail, may increase the trail and scale the upfront commission. Conversely, a new brokerage, which relies on upfront commission for cashflow, may elect to forgo trail commission and boost the upfront.
The aggregator says 90% of applications are now using this model, and according to Connective head of sales and business development, Michael Goerner “a number of broking brands have been influenced to partner with us in order to take advantage of the flexibility offered”.
Meanwhile, general manager Frank Paratore contends the Ballast model was built with income protection in mind.
“The hardest thing as we all know is to gain a customer. Once you’ve got that customer you should be doing absolutely everything you can, to keep that customer on board. So if you can provide more services to the one customer, the less likelihood they’re going to leave, which is going to protect your income and actually increase it.”
The boutique aggregator gives brokers several options in which to incorporate financial planning into their service offering.
“With our model it’s a situation where people can either refer into us and we will take care of their referral for them and still pay them an upfront and trail with a guarantee to not cross-market back to their database. Or if they’re entrepreneurial and they want to grow their business, because we hold the AFSL if they want to bring a planner into their business, that planner can be licensed under us, work for them and you’ve got a whole database to market to,” Paratore says.
Customer retention is also at the forefront of AFG’s income protection plan for it’s members, says Hewitt.
“The major thing we do is our SMART marketing program. So essentially we act as the marketing and CRM department for each of our brokers and we communicate with customers throughout the loan life cycle from right from the initial settlement right through to birthdays, loan anniversaries and it looks like it actually comes from the broker, its from the broker’s brand. And that’s all aimed around retention of existing customers so that when the customer is looking to borrow the first thing that comes to mind is their broker and it’s also about generating referrals as well.”
Meanwhile, Loanmarket says it helps brokers protect income levels through training and broker support.
“We also provide the marketing tools needed to grow business in the new tech savoy world,” says Mark de Martino, the National Director of Sales for Loan Market. “One of our tools we offer brokers to protect their income levels are our broker websites, which are a full feature experience for any client looking at home loan from a mortgage broker.”
Fee for service
Talk of commissions and protecting broker income always gives rise to the fee-for-service debate. Smartline’s Karen Le Comte suggests more brokers are moving toward this model to boost income.
“Absolutely, we are starting to see brokers moving to this model already. I think the real difficulty at present is the level of service varies from broker to broker. To charge a fee for service there is a need for perhaps an industry standard/guidelines to be met so the client knows what level of service to expect. Each and every one of us need to ensure we are providing superior service continually not just at the transaction stage.”
Niche Lending’s Moshe Moses says some brokers may adopt a fee for service model, however such moves could prompt further calls from lenders to reduce commissions.
Mortgage Ezy CEO Garry Driscoll, who thinks that over time the industry will see a move toward fee for service, echoed his concerns.
“Do I necessary agree? Well not really, but this is something that the big banks have been pushing for a while and they have a track record of getting what they want. Fee for service will not happen overnight but as costs increase and if commissions don’t then something has to give and brokers will need to look at different ways to top up their income. If you want to charge a fee then you need to be able to offer something and this is where formal qualifications, training, experience and presenting yourself as a professional will really kick in and brokers need to prepare for this change.”
Meanwhile, Professional Finance Mortgage Brokers’ John Minihan says he doesn’t think many mortgage professionals will switch to fee for service as “the amount charged is insignificant compared to the commissions earned.”
The other barrier, according to State Custodians general manager David Westerman is consumer acceptance.
“Fee for service sounds all very admirable however the majority of borrowers will resent having to put their hand in their pocket.”
