Sophisticated referral aggregators are muscling in on the third-party channel and providing a lucrative revenue source for Australian businesses sending home loans to the big banks.
The Adviser recently ran a story highlighting the eleventh finding of ASIC’s remuneration review, that those who merely refer consumers to lenders are paid “almost as much as brokers”, despite “doing much less”.
According to ASIC, the number of referrals being made to lenders, either by the referrer directly or through a referrer aggregator, increased 22.6 per cent between 2012 and 2015.
Nexus Partners is a referral aggregation group that provides Australian businesses with a “dedicated referral management system”. The company views mortgage brokers and aggregators as its biggest competitors.
The Nexus Partners website states that “a growing number of mortgage aggregators are now wholly or partially owned by one of the big banks who have been acquiring these businesses in recent years. Our business remains truly independent, and something we believe has become a significant point of difference in the way we provide services for our referral partners and clients.
“We are not mortgage brokers, however we hold an Australian Credit Licence and have the same compliance and regulatory requirements as a mortgage broker or any service provider in the mortgage industry.”
The company states that “a fact often lost on consumers is that a mortgage broker does not have the capacity to approve a loan for a client on behalf of the lender”.
The referral aggregator describes brokers as “an order taker for the bank”.
"They speak to the client, they complete the paperwork, but ultimately the lender will make the decision on whether a loan is approved for a broker’s client."
Nexus describes the revenue potential of its model as “compelling” and says it demonstrates “a greater return for the time you in invest as compared to other third-party mortgage channels.”
The Adviser contacted Nexus Partners, who could not provide comment before this story went to press.
Brokers have reacted strongly to ASIC’s finding that referrers such as real estate agents and property developers are being paid up to 0.56 per cent upfront commissions from banks.
“The consumer comes first. Referrers are referring without that in mind. It is dirty, grubby and I can't see how it's even legal,” one broker commented. Another broker questioned whether referrers are subject to clawbacks.
Melbourne-based broker Michael Pesochinsky says he wasn’t surprised to hear that referrers are being paid almost as much as brokers.
“The banks are always trying to create a competitive environment,” Mr Pesochinsky told The Adviser. “Quite often you find that banks will be able to do more than what the brokers can,” he said, adding that a broker’s obligations are far more onerous than a bank’s.
“An example would be a mortgage broker must go through a full fact find with a customer and then sign off on a proposal with a client before moving forward with an application. With the banks, they can just go straight from meeting the client to putting an application in and getting the loan arranged.”
The Full Circle Investment Group CEO and co-founder said the rise of mortgage referrers simply means brokers must become “more creative” at winning business.
“I don’t think it is the ideal situation, but it’s not the end of the world. Most people who have relationships with brokers prefer dealing with brokers,” he said.
One way that brokers can outperform referrers is by looking at a client’s situation to identify how they can structure their finances to further invest, Mr Pesochinsky said.
“Another way is providing a higher level of service that the banks generally don’t offer,” he said.
According to ASIC, the total number of home loans sold after a referral increased from 8,124 in 2012 to 26,106 in 2015, representing an increase in value from $3.3 billion to $14.6 billion.
ASIC noted that more than 87 per cent of those sales were by two major banks.
Referrals by professional services businesses (either directly or through a referrer aggregator) made up the bulk of referrals, with one out of three of these referrals coming through a referrer aggregator.