Mortgage brokers adopt planner model but with commissions

Despite some evidence given to both the Royal Commission and a Parliamentary Committee of Inquiry a key mortgage broking group is urging the retention of both upfront and trailing commissions.

The group, the Mortgage Brokers Forum (MBF), has produced a report recommending the retention of upfront and trail commissions, claiming the structure provided a strong incentive for mortgage brokers to put customers in the right loan the first time and promoted competition.

It said that both borrowers and lenders relied on mortgage brokers and maintaining the current commission structure was the best way to keep interest rates low.

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However, the same report has seen the MBF recommend the adoption of a licensing system in the mortgage broking industry similar in character to that which applies in the financial planning industry.

The report has recommended the creation of Registered Credit and Compliance Holders (RCCH), which would continue to aggregate mortgage brokers and lenders but also be responsible for the behaviour and compliance of its aligned mortgage broker network with each RCCH to be supervised by the Australian Securities and Investments Commission (ASIC).

“An RCCH would help ASIC do its job of supervising the mortgage broker industry, helping achieve better outcomes for customers,” according to founder of Yellow Brick Road and member of the Mortgage Broker Forum, Mark Bouris.

“Aggregators would play an expanded role in the sector by holding the umbrella license and ensuring its licensees comply,” he said. “Mortgage brokers would become more accountable for their decisions.”

“The change would help ensure a healthy mortgage broker industry, which is critical to keeping the home lending market competitive. More than half of all mortgages, worth around $200 billion a year, are organised through mortgage brokers,” he said.

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Dream on boys - in case you hadn't noticed, the world has moved on. The days of carving out a stress-free and highly lucrative career on unjustifiable upfront and trailing commissions are over. Good luck, Cheers, Doug

Plenty of self serving statements in there.

MBF claiming upfront and ongoing commissions provide an incentive to put customers in the right loan the first time when it actually creates an incentive to do the opposite, via the significantly greater upfront commission. Basically they just don't want anything to change.

And Mark Bouris wanting to create a structure that is under threat in financial planning because it doesn't work in protecting consumers so that aggregators (such as YBR) would have more power.

Thanks for reporting it Mike, but don't give these guys too much airplay. Someone might believe what they are saying is true.

Upsetting the mortgage broking system too much, which accounts for about half of all loans written may end up giving more business direct to the lenders. Talk of taking away their trail and leaving a healthier upfront may also encourage greater churn as well. The system isn’t that broken anyway and this does look like hand cuff aggregators like Yellow Brick Road et al trying for more and more control. That’s a bit like giving dealer groups more power. Foolish letting big aggregator sharks like Connective, Vow, Plan etc taking the cream from the top and controlling the many, many business that either have no choice or don’t know any better and go there. YBR’s days may be numbered (Bouris’s certainly not) with a tanking share price, outrageous franchise cost, Macquarie leaving the ship, no real financial advisers, terrible support structure, the Indians doing all the work and the chiefs always getting their healthy cut and posting regular losses. The stupid planner group model is for their benefit. Brokers beware.

Bouris wants to move mortgage broking to a model financial planning is desperately trying to get away from! Financial planners are increasingly moving towards individual or small firm licensing. Having large product companies responsible for adviser licensing doesn't work. It allows the product companies to use "compliance" levers to boost product sales. Bouris is an old fox asking to be put in charge of the hen house.

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