Broker remuneration – lender fee for service model coming soon
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April 22, 2017
- Posted by: Kate Haddad
Broker remuneration – lender fee for service model coming soon
22 April 2017
First posted on Propertychat.com.au
So it looks like we’re nearing the culmination of 18-24 months of reviewing the mortgage broking industry. Unsurprisingly, it looks as though the banks will take this as an opportunity to introduce alternative remuneration arrangements that will likely result in lower payments and cost cutting to the broking industry.
The ABA (the Bankers Association that represents Banks)- review into remuneration arrangements came out late last week and they recommended a ‘lender based fee for service’ model to broking. This model should be less weighted to ‘volume’ but include other metrics to remuneration. Interestingly, specific mention to maintain some form of trailing payments.
In the last 24-48 hours, all four major banks have agreed to implement the changes as soon as possible.
At this point, its uncertain what the design of remuneration payments may look like, but can make a few educated guesses about what they will seek to do:
- I imagine they’ll seek consolidation in the mortgage broking industry (i.e. fewer, but higher performing brokers). CBA have been saying this at their diamond broker conferences of late.
- A lowering of their cost base – i.e. less payments made overall to the industry.
- More incentives to shift consumers to the retail channel (they won’t say this publicly too much though, but it suits them).
My thoughts on what this will mean for the industry:
- Drop in overall remuneration for brokers. Likely to shift a focus on cost cutting.
- Will taper the growth rate to the brokerage industry (trending upwards).
- It will lead to a material fall in the number of brokers in the industry over the medium term.
- Smaller brokerages (one person brokerages, part timers etc) – to be targeted the most. I suspect there’ll be a higher payment to quality brokers (measured by volume, quality metrics).
- I imagine if your not writing 30-50m+, the banks don’t want you.
- Also smaller trial books will make this harder to absorb as a business.
- Overall potential improvements to the ‘professionalism’ of the industry. Less numbers, but better quality.
- I hope this doesn’t impact competitive dynamics with smaller lenders who obtain most of their market share via broker channel – that would not be a good outcome for the consumer.
An actual play by play of how this has come about:
- ASIC reviewed mortgage broker remuneration impact on consumer outcomes.
- No major recommendations made, other than removing soft dollar incentives and volume bonuses. No changes to existing trial or upfront model, other than a recommendation to review it again in 4 years.
- The ABA – the bankers association that represents the banks – concurrently did a review.
- That review, said the model doesn’t work and needs to be changed.
- A ‘lender based’ fee for service model proposed.
- Big 4 lenders have immediately come out in support of the review and pledged to action all 21 recommendations by this July or next financial year at latest.
No surprises here, i’ve listed what i thought would happen on separate threads. I thought it would all play out this way and that banks would take this as an opportunity to cost cut via the broker channel. They’ve been ‘signalling’ it since last AGM season where CEO’s (Narev in particular).
(ASIC review on mortgage broking industry).
Actual words and source:
- An alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.
