FICOM’s window for comment on the pending disclosure rule change is drawing to a close, meaning brokers will likely know soon whether it will go into effect
Brokers had hardly finished digesting their holiday dinners before an influx of news gave them something new to chew on. One major story was that FICOM, British Columbia’s regulator, had finally broken its silence regarding its proposed disclosure rule changes.
FICOM issued an open letter to the industry, encouraging broker comment before it officially changes its interpretation of Form 10, which would require mortgage documents to explicitly state how much brokers are compensated.
“FICOM welcomes ongoing discussion with you on these and other important issues and questions,” the letter read. “This will help us ensure that the interest of consumers, [the] industry and FICOM are appropriately balanced in our regulatory requirements.”
However, while FICOM says it welcomes broker industry input, one veteran – who spoke with CMP on condition of anonymity – says the invite is strictly political and that FICOM’s decision has already been made.
“The tone of the letter makes it seem as though FICOM is merely ticking a box that requires them to ask for industry feedback before the change can officially be implemented,” the source says.
And while that may be a pessimistic view, the source – who is close to the situation – says the industry will not take the change lying down.
“I know there are many high-level mortgage professionals who are exploring political avenues to ensure our voices are heard,” the source says.
FICOM’s letter, which was sent to CMP by a FICOM representative, explains its proposed plan to require brokers to disclose, in dollar terms, commission and volume bonuses earned on deals, as well as other rewards the broker might earn from the lender. It also explains the reasoning behind the additional disclosure requirements.
“A declaration that the broker is paid by a lender does not go far enough in describing, in a meaningful way, the interests that the broker and related parties receive from the transaction,”
FICOM wrote. “It masks the nature of those interests and keeps them hidden from the consumer.”
The regulator went on to explain that the changes are a pre-emptive measure.
“FICOM’s primary job is to anticipate risks and take action before they can become problems for the public and the economic well-being of the province,” the letter stated. “We take that assignment seriously.”
Although FICOM says it’s acting in the best interest of clients, not every industry player sees it that way.
“Studies have been done that show compensation disclosure actually confuses clients, and they often end up paying more as a result,” says Dustan Woodhouse, a broker with Dominion Lending Centres Canadian Mortgage Experts. “The regulator says it is acting in the consumer’s best interest, but it is operating in a vacuum that only allows them to impact mortgage brokers. They should realize equal disclosure rules across the industry are what is in the client’s best interest.”
Obviously, FICOM has no jurisdiction over the big banks – something Woodhouse acknowledges – but it could, perhaps, hold off on making a decision that will impact only one sector of the industry until similar requirements are passed across the board.
“Bank branch staff are paid tiered commission, which doesn’t have to be disclosed; they are also paid additional revenue for cross selling products that may or may not be in a client’s best interest,” Woodhouse says.
And many brokers will point out that compensation tied to selling specific products would entice bank specialists to encourage clients to purchase such products, even if they don’t need them. Still, Woodhouse and many others are sympathetic to FICOM’s efforts.
“Anyone who thinks the regulators’ efforts to protect the consumer are easy or misguided should spend a few days in their shoes; look no further than the number of complaints they receive each year,” says Blair Anderson of Anderson and Associates. “I think FICOM’s open letter does an adequate job of describing the risks, or conflicts of interest, associated with our industry. There’s a long list of potential influences on the mortgage intermediary: tiered pricing, volume bonuses, proprietary points, non-monetary rewards, business partners/relationships, to name a few. Do you really think the consumer is adequately protected?”
Anderson suggests all mortgage brokers and agents get involved by contacting FICOM and their respective industry associations to share their concerns.
“Changes are coming,” Anderson says, “and it is up to us to provide the necessary feedback so FICOM and other regulators can achieve the balance they are looking for.”
FICOM issued an open letter to the industry, encouraging broker comment before it officially changes its interpretation of Form 10, which would require mortgage documents to explicitly state how much brokers are compensated.
“FICOM welcomes ongoing discussion with you on these and other important issues and questions,” the letter read. “This will help us ensure that the interest of consumers, [the] industry and FICOM are appropriately balanced in our regulatory requirements.”
However, while FICOM says it welcomes broker industry input, one veteran – who spoke with CMP on condition of anonymity – says the invite is strictly political and that FICOM’s decision has already been made.
“The tone of the letter makes it seem as though FICOM is merely ticking a box that requires them to ask for industry feedback before the change can officially be implemented,” the source says.
And while that may be a pessimistic view, the source – who is close to the situation – says the industry will not take the change lying down.
“I know there are many high-level mortgage professionals who are exploring political avenues to ensure our voices are heard,” the source says.
FICOM’s letter, which was sent to CMP by a FICOM representative, explains its proposed plan to require brokers to disclose, in dollar terms, commission and volume bonuses earned on deals, as well as other rewards the broker might earn from the lender. It also explains the reasoning behind the additional disclosure requirements.
“A declaration that the broker is paid by a lender does not go far enough in describing, in a meaningful way, the interests that the broker and related parties receive from the transaction,”
FICOM wrote. “It masks the nature of those interests and keeps them hidden from the consumer.”
The regulator went on to explain that the changes are a pre-emptive measure.
“FICOM’s primary job is to anticipate risks and take action before they can become problems for the public and the economic well-being of the province,” the letter stated. “We take that assignment seriously.”
Although FICOM says it’s acting in the best interest of clients, not every industry player sees it that way.
“Studies have been done that show compensation disclosure actually confuses clients, and they often end up paying more as a result,” says Dustan Woodhouse, a broker with Dominion Lending Centres Canadian Mortgage Experts. “The regulator says it is acting in the consumer’s best interest, but it is operating in a vacuum that only allows them to impact mortgage brokers. They should realize equal disclosure rules across the industry are what is in the client’s best interest.”
Obviously, FICOM has no jurisdiction over the big banks – something Woodhouse acknowledges – but it could, perhaps, hold off on making a decision that will impact only one sector of the industry until similar requirements are passed across the board.
“Bank branch staff are paid tiered commission, which doesn’t have to be disclosed; they are also paid additional revenue for cross selling products that may or may not be in a client’s best interest,” Woodhouse says.
And many brokers will point out that compensation tied to selling specific products would entice bank specialists to encourage clients to purchase such products, even if they don’t need them. Still, Woodhouse and many others are sympathetic to FICOM’s efforts.
“Anyone who thinks the regulators’ efforts to protect the consumer are easy or misguided should spend a few days in their shoes; look no further than the number of complaints they receive each year,” says Blair Anderson of Anderson and Associates. “I think FICOM’s open letter does an adequate job of describing the risks, or conflicts of interest, associated with our industry. There’s a long list of potential influences on the mortgage intermediary: tiered pricing, volume bonuses, proprietary points, non-monetary rewards, business partners/relationships, to name a few. Do you really think the consumer is adequately protected?”
Anderson suggests all mortgage brokers and agents get involved by contacting FICOM and their respective industry associations to share their concerns.
“Changes are coming,” Anderson says, “and it is up to us to provide the necessary feedback so FICOM and other regulators can achieve the balance they are looking for.”
