Overhaul net of offset structure, urges FBAA

The analysis, which reviewed financial data from a cross-section of brokers during 2018-21, reported that while gross revenues and profits have risen, net profits after wages are on average, “very small”.

The slimmed margins are the result of what FBAA managing director Peter White has called “the unholy trinity”: clawbacks, discharge tactics from banks’ retention teams and net of offset.

The average annual clawback value per annum to a broker had surged by 47.4 per cent over three years, from $10,229 in 2018 to $15,077 in 2021.

In the same period, lender-causing cashback incentives rose by 59.1 per cent.

But the FBAA has raised the alarm on net of offset commissions. The number of loans settled where commissions were paid net of offset funds had more than tripled, up by 236.2 per cent.

There was an even higher rise in the number of deals where brokers had to wait 12 months to be paid a commission, due to the net of offset arrangements. The number of deals had more than quadrupled, up by 339.5 per cent from 2018 to 2021.

Mr White commented the surge in delays has damaging effects for brokers.

“That has a big impact across the industry. When you’re trying to run a business, you’ve done your job and you’re potentially waiting 12 months to get paid for this portion,” he told The Adviser.

“These things are impacting the commercial, financial viability of brokers.”

Mr White also referred to other rising costs for brokerages, including business operations, aggregator fee increases, PI insurance and the cost of outsourcing services.

“But clawbacks and net of offset transactions have eaten into profits in a huge way and we have to address this,” he said.

The FBAA is urging for some consistency across the lending industry on net of offset commissions, as rules across companies vary.

The issue of delayed commissions resulting from offset accounts was always there, Mr White said, but the issue has escalated substantially in recent years. 

He also argued that the offset commissions delays “shouldn’t be happening”.

“Some of the banks will argue, it’s technology systems – well fix it, you’re making billions of dollars of profit every year,” he said.

“All these people have done a job for you the way you wanted it and you’re not paying.”

The FBAA has begun discussions with the Labor Party about its data, after recent talks resulted in the opposition committing to look at clawbacks.

But Mr White does not expect much to happen until after the election, when the new government is confirmed.

The FBAA has also flagged that it will talk to regulators about the net of offset matter.

However Mr White has said that his hope is that the lending industry will take the initiative, unprompted, to correct the issue – especially as any business from brokers was what was best for the client, under best interests duty.

“Just stop doing it. Do the right thing by people,” he said.

“It’s not right, by anyone’s standards.”

[Related: MFAA chief to exit]