A leading mortgage broker has written a whitepaper on the value of brokers and presented it to his federal MP in a bid to “get the truth out there about why brokers are doing so well”.
Steve Milligan, broker and director of Mandurah-based brokerage Launch Finance, has written a whitepaper for Federal MP Andrew Hastie titled The Value of Finance Brokers and Positive Consumer Outcomes.
The 10-page paper provides background to the broking industry and the ongoing reports and commissions that have been looking at the sector and aims to “highlight some of the shortcomings” with them and “offer a more balanced industry-accepted view”.
The scope of the whitepaper report is therefore “limited to discussing value of using a broker in promoting good consumer outcomes and the importance of maintaining a commission-based remuneration structure (including both upfront and trail commissions)”.
It reads: “Competition is key to promoting good consumer outcomes. Removing the broker channel would mean the market share of the big four banks would once again dominate, and consumers would struggle to access second-tier lenders.
“There is no evidence to support an argument that current broker commission structures systemically promote poor consumer outcomes.
“A move to a fee-for-service remuneration structure would mean some consumers could not afford to use a broker. Additionally, it would mean that brokers would have to compete with banks on an “unfair playing field”. This would provide the big four with a competitive advantage and could lead to poor consumer outcomes.”
It concludes: “Brokers deserve to be paid for their ongoing support to clients. Trail commission does not prevent or deter brokers from assisting clients to refinance, but simply ensures that brokers are remunerated for the ongoing service they provide.”
Highlighting the “unintended consequences”
Speaking to The Adviser, Mr Milligan said that his motivation to write the report was borne out of a frustration with how the industry was being perceived by those reviewing the industry, and amid concern over unintended consequences that any potential changes to remuneration could have on the industry and borrowers.
Mr Milligan elaborated: “After seeing some reports coming out, such as the Productivity Commission [draft] report and a few things like that, I was concerned because I think there was a lack of research done by the people writing those papers.
“For example, the Productivity Commission came out and basically said that a finance broker is encouraged to keep a loan with one lender because they get paid a trail income. Well, that couldn’t be further from the truth. We actually get paid more money by refinancing to other lenders because we get upfront commission again. So, really, there was some incorrect conclusions in some of those reports.”
The award-winning WA broker argued that an “unintended consequence” of removing trail could also be a reduction in the broking industry, which would in turn impact consumers.
He said: “There has been a lot of questioning of trail income and what it does. That trail income allows me to employ people going forward. I told the MP that what is missing from the reports is the understanding of the unintended consequences of their decisions. I don’t think they actually realise the consequence of these proposed actions.”
Mr Milligan likened it to APRA’s speed limits on investor and interest-only lending, which led the banks to raise interest rates and led to consumers paying more.
He also noted that broker workloads have “increased by about 60–70 per cent” in the past five years, meaning that brokers are effectively being paid less for more work, and reducing commissions further (or cutting trail, for example) would drastically impact the sector.
“It is the unintended consequences of their actions that they are not seeing. I feel that they are looking at the surface,” the broker said.
Mr Milligan therefore set about clarifying statements and showcasing the role of the broker in achieving good consumer outcomes so that, should federal politicians be called to vote on any potential changes to how the finance sector works, they would have data to pull from.
He said: “When I sat down with our federal MP, he was saying that when it comes to the time for MPs to deliberate in Parliament on mortgage broking, he needs something to stand up and support his argument.”
The Launch Finance broker added: “I wouldn’t be able to go into a court of law and argue a case well, because law is not my field of expertise. So, that is why I did it. And while the headlines are still coming out from the royal commission, a federal MP might have a separate point of view and see something on TV that might influence them.
“So, as much as we may hope that someone could read and assess the situation based on independent viewing, the reality is that they also see things on TV or the mainstream media and will be influenced by what they see.
“We want to get the truth out there about why brokers are doing so well and what we are actually doing to deliver good consumer outcomes.”
Mr Milligan said that he hoped his actions would “bring awareness to the decision makers” and make politicians “aware that brokers do a really good job”.
He said: “We’re a good group of people that provide good consumer outcomes. It’s not just about getting a client a better rate (although that is a part of it), but every broker out there can tell you a story about a client whose house they have saved from repossession or helped [a client] achieve some financial goals that they could never have done before,” the broker said.
“That’s why I did it. I was tired with seeing what had been reported and decided to do something about it.
“I would encourage brokers to speak to their MPs and do it sooner, rather than later. Because at some point, it may be too late.”
Annie Kane is the editor of The Adviser magazine, Australia’s leading magazine for mortgage brokers. As well as writing news and features on the Australian mortgage market, financial regulation, fintechs and the wider lending market – Annie is also the host of the Elite Broker podcast and regulator contributor to the Mortgage Business Uncut podcast.
Before joining The Adviser team at Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.
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