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Brokers, united, will never be defeated

by Troy McErvale5 minute read

Since the late 1990s, the mortgage broker industry in Australia has evolved into a maturing profession, where genuine well-compensated professional careers are available.

As with most new industries, it is still somewhat dynamic, and will continue to develop.

Until now, the development of the mortgage broker industry has been driven by lenders. Lenders have determined which brokers they would deal with, on what terms, what commission levels they would pay to brokers, and what levels of service would be offered to them. By contrast, brokers have really just had to accept whatever changes were introduced, and elect to either accept the changes or leave the industry.

Brokers write between 50 and 52 per cent of all mortgages, according to MFAA reports in November, and were responsible for 67 per cent of the growth in the mortgage market comparing the four quarters ending September 2013 to the same period in 2014.

Clearly, collectively brokers hold a significant influence over market share, and can have a direct impact on a lender's profitability. Brokers can use this market position to level the playing field, and negotiate better outcomes with lenders both for themselves and their customers.
There are two options available.

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One is to move away from a commission based-model completely to a fee-for-service model. While lenders pay broker commissions, they control the broker. A move to fee-for-service would see the client pay the broker direct for services provided, and allow brokers to control both their total service offering as well as their income levels. As brokers would be paid direct instead of through an aggregator, this would make aggregators largely irrelevant, and they too would need to charge brokers for the services they provided, which might be access to associated products, training/mentoring, licensing advantages and so on. Not surprisingly, lenders and aggregators have voiced loud objections to this model.

The second and perhaps preferred option is the creation of a broker's union, which is an idea I touched on in an earlier blog.

The union would only work with membership of the vast majority of brokers, and most certainly with the membership of the industry's leading brokers.

A union would, of course, need to be funded. So brokers could either make a financial contribution to it or the union could act as a 100 per cent broker-owned aggregator.

As an aggregator, the union could assess the performance of their panel lenders, and grade them for their performance based upon criteria that the union considers pertinent. This might include the availability and knowledge level of staff at broker resource centres; BDM availability; commission rates; clawback provisions; consistent decisioning; consumer pricing and other factors. Poorly performing lenders would be downgraded or removed from the panel completely.

In addition, the union might decide to offer a union-owned fully-featured and sharply priced white-label mortgage funding option, and one that allowed union members to price at their discretion and thus ensure market competition continued.

These initiatives have been tried before. They will work, but require full support by brokers. In the past, the take-up rate and support by brokers has been lacking. Eventually, the majority will understand the merits of such an initiative, and the power that they have collectively.

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Troy McErvale

Troy McErvale

AUTHOR

Troy McErvale is the founder and managing director of Freedom Home Loans and My Personal Lender, a combined mortgage broker and mortgage management business in Australia started in 2001. Since 2010, the company has offered an expanded service to include mortgages for foreign owners of US property, as well as US property consulting services to high net worth clients.

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