Mortgage brokers angered by clawbacks

It seems mortgage brokers are feeling the pain of risk advisers when it comes to clawbacks.

The recent introduction of legislative changes has seen the director and principal broker of a mortgage broking firm, Zippy Financial, Louisa Sanghera arguing that the clawback system now embedded in mortgage arrangements means “brokers are often working for free”.

Sanghera claims that, for this reason, the clawback system must change.

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She said that under the Best Interests Duty Bill brokers will be left out of pocket when clients opt to change lenders within the first two years of taking out their loans because of clawbacks.

“Of course, we have no control over what clients decide to do once the transaction is completed, yet we end up essentially working for free if they change lenders or repay their loans within the first year or two,” Sanghera said.

“In what other industry is it alright to essentially not get paid for work that you have successfully completed because of something that is completely out of your control,” she said.

Sanghera said clawbacks had been introduced prior to the Royal Commission and she had always believed them to be bad policy.

“Now it is set to become law with the only beneficiaries being the big banks in my opinion,” she said.




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Given that it is essentially Lawyers who have now embedded claw back as law in Australia, I would suggest that claw back also apply to Lawyers .......i.e. if a Lawyer is paid a fee after winning a case which is subsequently overturned on appeal, the Lawyers fee is clawed back. I bet the Royal Commissioners (i.e. Lawyers) would never agree to that would they? Mortgage Brokers and Financial Planners writing risk insurance are sadly the only professionals at the mercy of claw back. Totally insidious.

" In what other industry is it alright to essentially not get paid for work that you have successfully completed because of something that is completely out of your control "
Well, lets see..........Risk Insurance.
Significantly declining remuneration, 2 year claw back, significantly increasing premiums, significant reduction in consumers ability to pay for cover, significant over reach and over regulation creating significant red tape and cost to both business and therefore consumers to access advice, significant restructure of Income Protection Insurance creating probability of further premium increases forcing clients to cancel cover with no equivalent alternative, constant and relentless attack from consumer groups with ideological agendas, blanket and uneducated statements from those in power calling for the abolition of commissions entirely effectively resulting in the complete demolition of the industry, a continuing retraction of experienced and knowledgeable advisers, increasing levels of claims, therefore no premium paid and no remuneration paid, removal of insurance inside super via misaligned and mismanaged Govt legislation, mainstream media that attacks the industry at every level, a Code of Ethics that is unworkable and is geared to the removal of commission payments.
Should I continue ??

Nah ! - perfectly said Agent 86.

Ditto ...

Perfect summary

Risk insurance has clawbacks, if client cancels policy within 2 years

welcome to FP industry us FP's wear this risk for 2 years!!! welcome to our world

Start charging a fee for service and rebate commissions.

Still the same result if you rebate the commission back to the client and the client cancels within 2 years.
Here's a simple mathematical example.........
$2,000 Fee + $2,000 Commission - $2,000 Commission Rebate - $2,000 Clawback = $BIG FAT ZERO
Only solution would be to hold the commission aside for 2 years and then rebate after clawback period has passed

I assume you mean charge the client a fee and rebate the commission to them. But in both mortgage broking and insurance, most of the service is being provided for the product issuer, not the client. It is effectively outsourced implementation work such as application lodgement, and underwriting assistance. It is work the product provider would have to do inhouse themselves (at greater cost) if the client went directly to them. That is why clients don't receive any discount by going direct.

By all means advisers and brokers should charge clients a small fee for the advice component of their work. But it is inappropriate to charge clients an extra fee for the product providers' outsourced implementation costs. The product provider should pay for this, and they do, via commissions.

At the 60% rate for insurance commissions, it's probably about right in most cases to cover implementation work, but not advice costs. That is why many advisers are now charging the client a small flat fee for insurance advice, and retaining the 60% commission for the outsourced implementation work they do for the insurer.

Good point. Can you elect not to receive commissions???

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