A lack of remuneration protection has meant more brokers are taking matters into their own hands, says Top 100 broker
Brokers have long had to deal with the risk of clawback, but now because of lessened protection and the utilisation calculations of lenders, more brokers are at risk of having their earnings taken away or not even being paid at all. Top 100 broker Daniel O’Brien (pictured), of PFS Financial Services, told MPA that since brokers could no longer pass on the cost of lender clawback to their clients, he has had to start charging some clients a fee for service.
“If a husband has an affair with his secretary and the wife wants to divorce him six months after me settling the loan, I get penalised for that and it’s illegal for me to pass on that penalty or a fee to the client,” said O’Brien. “What this commission model forces brokers to do more is charge a fee for service because we don’t have the protection of clawback and we’re making less money with the utilization - it’s just pushing us to charge more these days.”
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Utilisation has exacerbated the issue by casting uncertainty around whether brokers will even get paid in the first place for certain types of transactions.
Some lenders, either on the day of settlement, or three days or two weeks after settlement, look at what extra funds there is on the loan or in the offset, he explained.
“Whatever that extra is, we don’t get paid on,” he said.
He offered a hypothetical example of a client with an existing loan that they ask to get topped up.
“I go through all the hoops and hurdles that we have to go through at the moment to get that for the client,” he said. “If that money is in the offset account two weeks after we settle, I’ve gotten paid zero for doing that work because of the utilisation calculation.”
While the lender has measures in place to check whether the funds are still there either six or 12 months down the track, a broker may still not get paid the commission if the client uses the money then puts it back in the ninth month, or if they close the loan.
“Sometimes you get a client that wants to get a $100,000 top up, or half a million dollar top up, to go and buy shares or go and buy properties,” he said. “Basically, anyone getting cash out at the moment, we’re potentially not getting paid on that because the banks are only paying on net of offset or net of redraw. That, with having no protection on the money you’ve earned, are two of the biggest challenges right now going forward.”
In order to protect the viability of his broking business, O’Brien has started charging an upfront fee to clients borrowing small amounts or those with complex or financially messy scenarios. He said if brokers were allowed to pass on the cost of clawback to the client, he would not need to charge other clients a fee for service.
“I would rather have the maybe of charging a clawback than the definite of charging an upfront fee,” he said.
In addition to this, greater documentary requirements implemented after the Royal Commission into banking have increased the cost of writing each loan – which, when coupled with the risk brokers face in clawback, has ultimately impacted broker livelihood.
“The Royal Commission was brought in to make things better for the everyday consumer, and it did in some ways, but it also made it worse in a lot of ways - because we’re essentially making less money now, we have to charge people more,” he said. “If it’s a $100,000 home loan, it’s just not worth me doing it these days.
“I think there has been an increased amount of brokerage fees being charged across the board because of what the government has implemented.”
O’Brien would like to see changes made in the clawback space that enable brokers to once again pass on the cost to clients if the loan is closed due to extenuating circumstances such as divorce or a life event.
“There needs to be a change,” he said. “If I’ve done nothing wrong and a change of circumstances has happened to the client, I shouldn’t be penalised for that.
“If I was allowed to clawback I could charge less fees.”
By charging fees, O’Brien has joined other brokers who have bitten the bullet and put a value on the increased time it takes to settle a loan. Sydney broker John Manciameli recently told MPA he started charging clients a fee for service in order to recruit a parabroker and loan admin officer for each deal. He initially questioned how clients would respond but was shocked at the overwhelmingly positive response he received from people.