Ramesh Bidari (CPA)
Associate Member of the FBAA
The Royal Commission has released 76 recommendations (publicly released 4th February 2019) to overcome misconduct in the banking, superannuation and financial service industry which would be a guide to the overall sustainable economy. Undoubtedly, there is disappointment on the mortgage broker for a radical change in remuneration. This article is classified in three section – Royal Commission recommendation, the adverse effects to mortgage broker industry and potential safeguard for the mortgage brokers.
Mortgage service is inevitable to Australian economy as it is credit base economy than Nepali economy. Nepalese mortgage brokers are providing assistance to many community primarily first home buyers where borrowers has no or little knowledge about loan process. The brokers are getting paid as up front and trail commission from lenders however the mode of payment will eventually be changed in the years to come.
- From 1st July 2020 – trail commission will be discontinued
- The up-front commission may be compensated from fee-for-service model where loan application fee will be paid out by the clients out of their pocket.
Also, lender commission model may not exist. This model attempt to prove that mortgage broker as an additional cost centre rather than value addition in the Finance industry.
Due to the oncoming practices, the effects to the Finance and Mortgage industry will be unstable. Mortgage brokers are demotivated due to the recommended remuneration system by Royal Commission. It can be easily predicted that this recommendation will increase monopoly of the big financial institution and make the overall banking industry less competitive. It is obvious that clients with no/less Finance education get trapped with a bank they trust. Each bank, only, give information about their product. While, the clients will not have multiple lenders information before signing the contract. Moreover, banking product will not be as competitive as today because bank will not be facing each other.
Average Finance Broker hold about 30 to 40 lenders as an option to the mortgage clients. There is more likely that client gets more suitable mortgage option from the mortgage brokers than a financial institution in its own. It is duty of the mortgage brokers to inform the client for well-informed decision and the borrowers are more likely to go with the mortgage brokers from the same cultural context.
Even if the remuneration model change, the structure is still in place. It means, to survive this unfavourable external environment, mortgage broker needs to go to the public and better take care of clients than what financial institution has to offer. Mortgage broker are not an agent of any financial institution. They put client first and disclose all possible mortgage options. This open plan policy proves the necessity of the mortgage broker. Brokers fee or commission is a peanut for the mortgage client in comparison to potentially wrong mortgage option. As long as mortgage broker positioned client first, and educate them for well informed decision, mortgage broking profession will continue to grow.
Keep the competition alive!