Who Pays Your ‘Free’ Mortgage Broker?
Published by MFAA
There’s no such thing as a free lunch, but that doesn’t mean you will receive lower levels of service or expertise from a “finance broker” who doesn’t charge you. It just means that someone else is paying for it. Each business will have its own reasons for its revenue model, and each structure offers different advantages.
Approximately 90 per cent of the more than 10,000 MFAA accredited finance brokers don’t charge a fee for their advice, relying on lender commissions for their income. Others rate their intellectual property as a service worth paying for upfront.
An aggregator spokesperson says that, while she can understand why some people have introduced a fee-for-service structure to cover costs even when a client takes their business elsewhere, recent survey results reveal that it’s not something some aggregator borrowers would agree to take on at this stage.
“It’s a tricky thing to introduce, and those who do tend to be independent players,” the aggregator says.
“But the truth is, buyers do shop around these days and brokers can end up doing a lot of work and not getting paid for it, especially since the introduction of the National Consumer Credit Protection Act 2009 – that prompted a lot of brokers to start charging. So, we might very well see an increased level of brokers charging in the future.”
A finance brokerage has done just that. After several years in business, agribusiness finance specialist RSP recently introduced a fee-for-service model that allowed it to help clients even when it would not make business sense to do so if the only income would be commission. It also allowed RSP to assign a clear value to its services and the experience in its team.
“It’s been a learning curve, but we realised that trying to engage clients without charging any fee, and just relying on the back end of success, really undermined how we evaluate our propositions,” says the finance broker.
Clients have been increasingly committed to the process because they wanted to guarantee a return on their investment and, contrary to the aggreagator's experience, the company saw little debate about the new fee structure.
“We value our intellectual property very highly. We’ve been in the trenches with the banks for years and we understand the internal mechanics – this is very powerful information to have when we’re operating on the client’s side.”
A clear advantage of seeing a fee-for-service adviser is having someone onside who isn’t worried about the volume of your business. They are paid to do a job for you, and they do that whether your loan is $200,000 or $2 million.
The main and very obvious advantage of seeing a “finance broker” who does not charge a fee is that it lowers the cost of procuring finance and, despite public debate, the different commission structures offered by the various lenders do not impact the “finance broker” recommendations.
Not only are MFAA accredited finance brokers bound by ethics agreements that demand they do not suggest loan products that are unsuitable for a client, an adviser who prioritised commissions over their clients would see their business suffer as clients realised that they would get a better deal elsewhere.
Whether you choose an adviser who charges fees or one who relies on commission, MFAA accredited finance brokers are bound by ethical standards requiring them to give you appropriate advice.