Morningstar is confident that Mortgage Choice brokers will receive a significant boost in commissions next financial year as the group overhauls its “outdated” remuneration model.
In a stock report published on 13 June, Morningstar analyst David Ellis noted that the current commission structure at Mortgage Choice sets $1.5 million of new loans as a monthly target to determine the payout for franchisees.
“Franchisees below this target are remunerated at the lowest tier of rates: 60 per cent of upfront commissions and 26 per cent of trailing commissions per year over the life of the loan,” Mr Ellis explained.
“Franchisees that exceed the target receive 82.5 per cent upfront, as well as trailing commission with multiple tiers of payout rates based on loan volumes, the highest tier being 82 per cent.”
Morningstar analysis suggests that half of the franchisees fail to deliver the monthly target.
“We do not see the $1.5 million target as easily achievable by small brokers or regional players, given the average value of new home loan settlements per broker is only around $1 million a month, according to the MFAA,” Mr Ellis said.
According to the ASIC remuneration review, the industry average is an 87 per cent upfront payout and a 78 per cent trail payout.
However, Mortgage Choice has acknowledged that its current remuneration model is “outdated”, and new CEO Susan Mitchell said that updating the model was her “first priority”.
The group expects to finalise its new remuneration model in July 2018 and to implement the model across the network on an opt-in basis in August 2018.
Morningstar expects Mortgage Choice will move to a flat payout of 82.5 per cent of upfront commissions, removing the two-tier payment structure based on the $1.5 million monthly target.
“With regard to trailing commission, we expect to see fewer tiers than the eight that currently exist and for the lowest payouts to increase from the very low 26 per cent to 40 per cent,” Mr Ellis said.
Overall, the analyst expects total commission payout to increase from 66 per cent to 70 per cent starting from next financial year.
[Related: Mortgage Choice CEO resigns]
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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