By requiring brokers to meet volume targets in order to retain accreditation, lenders are disadvantaging borrowers and potentially pushing brokers towards risky behaviour.
That’s according to Peter White, executive director of the Finance Brokers Association of Australia (FBAA). He was speaking to The Adviser in the fallout following an ABC Four Corners report that accused brokers and banks of using “aggressive sales tactics” to win customers in a target-based environment.
Responding to suggestions that the commission-based remuneration structure means brokers are prioritising loan volume over suitability, Mr White said that criticism should instead be aimed at the volume-based “hurdles” brokers need to leap in order to maintain their accreditation with lenders.
He said: “Brokers shouldn't have to maintain minimum volumes just to retain their accreditation because at the end of the day . . . that sort of mentality of ‘you need certain volumes to retain accreditation’ has the risk . . . of potentially causing the wrong style of behaviour.”
Mr White added that accreditation hurdles can end up disadvantaging borrowers. “People shouldn't be pushed in a certain direction. You should be able to have the freedom of choice that is the most suitable that you can do for your client and not do anything that may put a question over that.
“[The accreditation system] puts at risk them [clients and brokers] being able to access a certain lender, and what the outflow of that is [that] it puts the consumer at a disadvantage. Because, I might be a broker that writes one loan every two months with a specific lender... but every loan they get is the best client on the planet they'll ever receive. But, if I'm not writing enough volume to sustain that accreditation, my client who may be best suited to that product... doesn't get the opportunity, because that lender won't hold my accreditation. So, the consumer misses out.
“So the lenders are intentionally disadvantaging borrowers in this country.”
Time to ‘neck’ the ‘ratbag’ brokers
The prevalence of “cowboy” brokers who enter the sector with hopes of making easy money quickly was also put under Four Corners’ spotlight.
Speaking on the topic, Mr White was unequivocal: “They're the people that we want out of our industry. We want nothing to do with [those people] who shouldn't be playing the game. Get rid of them... put them in jail. I don't care. Get them out the industry.”
He stressed, however, that the instances of shonky “ratbag” broker behaviour were “extraordinarily” low.
“There's something within the vicinity of 60,000 mortgages done every month. You've got one or two examples [of poor behaviour shown on Four Corners].”
Further, cases of borrowers suffering mortgage stress weren’t always brokers' fault. Borrowers and lenders also need to take responsibility, he said.
“Sometimes it's not necessarily the broker's fault, and at the end of the day, it's the lender who makes the decision on their approval. It's not a one-stop blame shop. It can be issues on multiple sides, but unquestionably, the broker has a duty of care in their responsibilities and responsible lending conduct.”
Broker Ross Le Quesne of Aussie Parramatta agreed. He said that brokers do the legwork to ensure loans are suitable and repayable for clients, even when faced with a 2 per cent rate increase. He also added that “no one” forces a borrower to take out a loan.
“For someone like myself, that's been in the industry for 15 years and been through many, many different cycles, I think... brokers do give them [clients] the best flexibility, the best choice and quite often the cheapest rate, because we have a variety of lenders and can review their products.”
The relationships brokers form with clients are designed to “create a client for life”, he said. The difference between brokers and home finance bank staff is that “if anyone’s good [at the bank], they get promoted and moved up the ranks and don’t maintain a relationship with the same person”.
He added: “There is so much to be said for having a good, ethical mortgage broker that does the right thing by you.
"I think the whole [negative attitude towards brokers] is unfair on mortgage brokers. Most of the brokers that I know... want to do the right thing by their clients.”