He says the clawback system is reprimanding brokers for “no mistake of their own”
Two brokers have spoken out about the clawback system, saying that brokers are being reprimanded for mistakes made by banks as well as the unforeseeable life events faced by their clients.
Bernard Desmond of Blank Financial told MPA that three of his clients’ separations have cost him $30,000 in clawbacks this year. In addition, one of these scenarios saw a client charged almost $30,000 in break fees.
“On one hand you are reprimanding the broker because the loan got closed in that two-year period and on the other hand you are penalising the customer because they are on a contract with you and the break cost is almost $30,000,” he said. “If a client is going through a challenging time in their lives and are selling their house and not moving from bank to bank, why should a broker be reprimanded for that?”
The clients in these scenarios all had portfolios of properties, making the commission clawed back especially large, said Desmond. He told MPA that the clawback system was posing problems for newer entrants to the industry and solo operators who didn’t have the time and resources to maintain strong client relationships over the 24 months following settlement.
“That’s why more than 50% of them don’t survive,” he said.
Read more: How to deal with clawbacks
Louisa Sanghera, of Zippy Financial, spoke of a recent incident in which a client with multiple properties decided to move all of their loans from a second-tier bank after the lender in question made a mistake that it took months to fix.
“We worked so hard for this client,” she said. “I’m going to get four clawbacks on that whole portfolio, which is going to be a massive chunk of the income I’ve earned this year.
“The upsetting thing is, I didn’t make that mistake and I was trying my best to fix the mistake for him, but the bank made a mistake on a mistake on a mistake trying to fix it.”
Not only does she now stand to lose the commissions she was paid for introducing four loans to the bank in questions, she could also lose up to $8,000 in business costs incurred from writing the loans, Sanghera confirming it costs her “about $2,000 to do a mortgage from start to finish.”
Both Sanghera and Desmond believe a line should be drawn by lenders when it comes to situations such as these.
“I would really like there to be some sort of review board for when we get those deals and we’re being punished because of the bank’s mistakes,” said Sanghera.
Desmond said brokers should not be subject to clawback under certain extenuating circumstances.
“Life events, such as death or divorce, should not fall under clawback,” he said. “There was nothing wrong that I did in my process or that the bank could do to save the marriage. They literally sold their houses and distributed the assets between the two parties.”
He said there was no realistic way that a broker could foresee a marriage break up at the time of writing a loan.
“It’s a very awkward situation to stand before a couple as a broker and ask them, do you expect to stay together for the next 24 months?” he said.
He added that 24 months was too long a period for clawback to apply given the current environment in which “the banks themselves are promoting cashback culture.”
Read more: Does more cashback mean more clawback?
But the most important change he would like to see is that more banks work with brokers to retain customers.
“If a customer agrees to do a discharge and that notification is going directly to the banks, the first thing the banks should be doing is working with the broker and the customer to understand, what is it we can do to retain your business?” he said. “Right now, only two banks are doing that really well.”