Aggregators – not brokers – are on the endangered species list, says broker
By Jill Fraser for Lending Central
Melbourne-based broker Daniel Thorpe, Managing Director Thorpe Financial Services Pty Ltd says; “in the coming New World it will only require a minor shift in lenders’ policies to do away with aggregators”.
Thorpe contacted Lending Central and offered to put forward the broker’s perspective regarding the changing market.
He maintains that the broker perspective is constantly being trivialised as “whinging”. His argument is that the opposite is true - brokers are adapting to change but not so lenders and aggregators to anywhere near the same extent.
“It’s becoming increasingly clear to me that aggregators - the middlemen - are the one part of the equation that could disappear,” he says.
“The banks have established individual criteria. Their rules vary but essentially they all state that unless brokers submit a specified number of loans a quarter they’ll lose their accreditation.
“There goes the whole point of being with an aggregator!”
Thorpe, who boasts 40 years in the industry - 10 as a broker and prior to that as the Consumer Marketing Manager for a major bank, where he was heavily involved in setting up the broker processing centre, reviewing credit policy and was “pretty much the first major bank broker BDM” - has seen it all from both sides over a long period of time.
He contends that once the bean counters work out that aggregators cost anywhere up to 50% of the commission outlay (the middleman’s cut) a new model that goes directly to a lender/broker relationship (as many non-bank lenders already do) can give brokers a pay rise and reduce overall commission costs by chopping out the middleman, which means good night Irene to aggregators.
Thorpe believes that banks will retain the broker channel because it involves too much market share and for many second tier lenders it is their sole distribution channel.
“What they are doing is engaging in a round of cost cutting (10 years ago the marketers ran the channel, now the accountants are taking over). They are attacking the brokers directly as they are seen as the most vulnerable. This action is essentially the first move to making aggregators irrelevant,” he says.
“The fact is that the small businessman broker does all the selling and owns the customer, needs to be covered for everything from lender accreditation, insurance, dispute resolution and very soon licensing (already the case in WA) and has an outlay on these costs and compulsory memberships etc of in excess of $5000pa before a single loan is written.
“The broker carries the channel in partnership with lenders product offerings. No brokers, no channel.”
Thorpe wonders who owns the trail books now that lenders are establishing agreements directly with brokers and bypassing aggregators.
“Are they owned by the banks, the aggregators or the brokers,” he asks.
The industry is morphing into new models and Thorpe forecasts that these new scenarios will see banks making increasingly more deals directly with brokers.
“They can just pay brokers the money and effectively brokers become lending managers for any numbers of banks,” he says.
The provision of lending software, which is currently provided by aggregators, could easily be accessed through a hiring facility set up specifically for this purpose.
He raised three issues about which he’d appreciate feedback:
1) Why aggregators are mentioned in the MFAA Constitution but only sparsely in the MFAA Code. “Are they covered by the Code,” he queries.
2) Why the Annual Average Percentage rate, which is now enshrined in the new legislation, isn’t scrapped. “It’s an impossible sum and allows crooks to put anything they like there. The MFAA and the lenders should have told the government to forget it. Handing a customer a CRS form is about as useful and accurate as handing them a Nigerian oil scam letter - both are about wishful thinking and dream fulfilment, not reality,” he says.
3) Why loan reduction schemes are permitted to exist. “They’re a complete straight rip off,” he declares. “Any half-way competent broker can explain mortgage reduction in two minutes at no cost to the customer.”
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Graeme Kluck July 10, 2009
Daniel Thorpe is spot on concerning mortgage reduction schemes, why people payout money to explore these products is totally beyond me and Iagree they should be banned in the marketplace.