IF THE BANK LIKES IT WE’LL ALL BE BROKE
The banking royal commission got it very wrong in one area: Mortgage brokers are not the guilty party here.
IT’S the golden rule for the financially savvy: what’s good for the banks is bad for you.
Which is why my internal Scrooge McDuck alarm started ringing when Commonwealth Bank boss Matt Comyn hailed the banking royal commission’s recommendation to overhaul the mortgage broking industry.
Commissioner Kenneth Hayne says the “borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending”.
In other words, the banks should not pay for us to pay them. Instead, we should pay … so we can pay some more.
Of course, that makes total sense.
God forbid the banks should have to pay someone to advertise their business to potential customers, who will then pay a fortune in interest over the life of the loan.
It makes way more sense for me to pay thousands of dollars in fees for someone to find me the best bank deal. I mean, what’s the problem? Buying a house is such a simple and affordable venture, surely it’s time we threw a few costly roadblocks in the way?
Seriously, Kenneth, are you quackers?
Of course there are bad apples in the mortgage broker bunch who have pushed clients into loans due to the commission kickback they receive, but that doesn’t mean we need to throw the whole brokerage cart out.
In fact, the customer satisfaction measure of mortgage brokers is consistently high, with research released just this week showing more than 96 per cent of customers not just satisfied with the service, but unwilling to pay upfront for credit advice.
Abolishing commissions will only restrict people, particularly those from lower incomes, from receiving quality advice. Instead, many of those consumers will simply buy what their bank branch broker, who is anything but objective, is selling.
To be clear, I’m not arguing on behalf of brokers or banks, I’m arguing as someone with a mortgage.
I’ve used a mortgage broker since 1999; our current broker has been with us for longer than our children and is practically part of the family.
And I’m not alone. More than half of all loans in Australia are signed using the services of a broker. That’s not due to “Big Broker” pushing their wares down our throat, it’s because we don’t want to deal with the banks – their hours aren’t flexible, their service isn’t personal and it’s far too time-consuming and soul-destroying to visit every branch in the neighbourhood trying to source the best deal.
There are times when our broker has recommended different banks for different loans, simultaneously. Talk about mutual satisfaction. There is no way my branch manager would have suggested this sort of threeway.
If the banks want my business, they can pay for it. And I’m happy for my broker to reap that reward, because ultimately I benefit.
There is criticism that some borrowers are unaware that this free service means their broker will receive a commission – both upfront and ongoing – from the lender they choose.
Really? Who are these people? How many adults in a
situation to purchase a home are so naive as to believe this broker is sitting in their living room offering this service out of the goodness of their hearts?
We know how this works, and we’re fine with it.
Then there’s also criticism of trail commissions. Now, normally, I’m not a fan, but Kenneth got this one wrong when he described it as “money for nothing”.
“Why should the broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?” he asks.
Umm, because often his work is not done. Not my broker, anyway.
I speak to my broker frequently through the year and there have been times when, back when rates were on the rise, he would get on the phone, speak to his contacts at the bank, and convince them to waive that fee for us.
Yes, that happened. More than once. From memory, we had an almost 2 per cent discount on the retail rate.
Imagine if I tried to do that for myself. I’d still be on hold.
And then there are the (many) times where we’ve called him to our house, discussed our plans to purchase a property, talked for hours … and then done nothing. He lost a Saturday, but we received information that ultimately helped shape our current financial position.
Would he have been so willing to do this without the trailing commission? I know I wouldn’t if I were him. But I also know as a customer that I wouldn’t pay for that visit unless I was sure I was going to act.
I just feel royally pissed that the greatest effect this royal commission will have on my life is making me pay more for a service that ultimately benefits the banks
I admit that I also feel for the 27,000 mortgage brokers of Australia who, like mine, are not boardroom bigwigs but mums and dads running a small business.
Sure, some of them have done the wrong thing, maybe receiving a conflicted payment or even engaging in misconduct. But they didn’t set those incentives and KPIs or design the conflicted system.
Nope, that one is on the big banks. Who, under this recommendation, now get to save money while I spend more.
As to what we actually end up with, that depends. The Coalition Government will delay this change in the interest of competition. But a Labor government – something that might be just months away – would implement the changes in full.
By all means, let’s ensure that commissions, trailing and otherwise, are explained to consumers. Even better, let’s make all banks simply pay the same commission fee to brokers.
Whatever we do, let’s ensure we make the banks pay.