The mortgage industry needs to be wary of a rise in lender incentives or risk a loss of consumer trust, says Outsource Financial CEO Tanya Sale.
Incentives offered to brokers for lodging deals through certain lenders have increased in recent months, says Sale, driven by a loss of market share by some banks.
While Sale doesn’t believe most consumers are currently aware of the incentives, she says the move could see brokers facing increased scrutiny by ASIC and a loss of repute in the long-term.
“Again we go back to the wicked days of mortgage broking where the third party industry had a reputation of lodging a deal somewhere for the money and not having a care in the world for fulfilling the wants and needs of the client,” says Sale.
Outsource Financial refuses to publicize lender perks amongst its loan writers, and actively speaks with them regarding minimizing conflict of interest, says Sale.
While Sale encourages other aggregators or business owners to do the same, she says lenders are placing brokers in a difficult situation.
“You will get good quality brokers out there that it won’t have any relevance to because their main aim is to run a very successful, multifaceted business professionally and ethically, but there’s still brokers out there that are driven purely by the dollar and if people say there’s not they’re living on Saturn… It’s just human nature when you’re talking about one’s hip pocket or putting food on the table.”
In an attempt to mitigate conflict of interest created by differing incentives, franchise Mortgage Choice pays brokers the same regardless of the lender. Brokers do, however, still receive soft dollar incentives from banks.
Any incentives valued at over $500 are listed publicly on Mortgage Choice’s website. Since the company began listings in March 2011, close to $37,000 worth of incentives had been declared by Mortgage Choice brokers. More than $20,000 of this was provided by BankWest in the form of tickets and accommodation for sporting and music events.
Spokesperson Jessica Darnbrough says brokers are not obliged to point out these incentives to clients.
“ASIC does not require brokers to disclose their non-financial benefits to customers. Mortgage Choice includes this information on its website in the interest of complete transparency.
“All lenders understand that the relationship they have with their brokers is very important. As such, they invite them to events in order to help build strong relationships. Why specifically BankWest hosts a lot of events/activities would be a question better directed at the lender.”
Sale suggests that instead of trying to win broker business through incentives, lenders should focus on offering brokers better service to their clients, or incentivize based on loan quality.
“I support that fully because it makes sense to reward the writer because then the lender’s not paying for rework. If it’s quality, then congratulations, you get a pat on the back, nothing wrong with that.”
If the current trend continues, however, brokers risk losing any credibility gained in recent years.
“We’ve gone up about ten notches in professionalism; there’s more regulation, we’re asking more of our writers, but what the lenders are doing now I think it’s yet again muddying the waters.
“We don’t want the spotlight on our industry more than it has been. If we keep on going down this path ASIC will look at this industry just like they’ve looked at the wealth industry and that’s one thing you don’t want happening.”
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