Brokers need to be set free

Posted by LC Team, Friday, August 28, 2009

Australia’s largest independent mortgage broker has called for brokers to be given greater freedom to switch between aggregators.

Loan Market Group Executive Director John Kolenda said some broker teams wishing to move between aggregators were being prevented from doing so because of the loss of trail commissions.

“We have found many brokers are handcuffed to their current aggregator by the trail component,” Mr Kolenda said.

“If they decide to leave they could lose hundreds of thousands of dollars and this is a common situation throughout the industry.”

Mr Kolenda said some aggregators tied brokers to long term agreements under which they lose trail commissions if they leave or never own them at all.

“Under most of the arrangements we see the brokers don’t even have rights over their clients and when they leave that aggregator they lose the lot, including the right to communicate to their past customers,” he said.

“Brokers should be entitled to work under agreements with aggregators that treat them as true partners.

“They should have a right to own the trail commissions as an asset and own the customer.”

Mr Kolenda said brokers were running businesses that were becoming increasingly more sophisticated and professional.

“They desire more from their aggregators including an acknowledgement of the goodwill they generate from the relationship with their valued, loyal clients,” he said.

“If the broker is handicapped by a one-sided agreement with the aggregator they are powerless to gain what they have worked so hard for in building a relationship with their clients.

“In any other business the goodwill and loyalty developed with clients is a highly saleable commodity, but in the case of aggregators this is not adequately acknowledged.”
Mr Kolenda said Loan Market Group strongly supported free market flow.

“We don’t have arrangements which keep brokers in handcuffs,” he said.

“And we would urge brokers to read their agreements with aggregators carefully and choose one that treats them fairly.”

Source: Press Release

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11 Comments

MMA August 28, 2009

Brokers are entrusted with arranging mortgage contracts on behalf of their clients, and their clients trust them to know what they are recommending.

If a broker isn’t even competent enough to read the fine print in their own aggregation contract before signing it, they deserve the golden handcuffs.

Derek Miles August 28, 2009

MMA - I think your comment is a little bit unfair. Many brokers like me that have been in the industry for 15 years had absolutely no choice. That is, we started with the 3 aggregators that were available 15 years ago and we cannot escape these agreements. To do so was financially detrimental and each year that goes by stuck with the current aggregator makes it even harder to leave. It is fine to say that brokers who signed agreements in the last 5 years when there considerable more choice should have known better, but it is not for those who have been brokers for much longer periods.

So please understand the industry better if you are going to make outlandish comments and unfounded critisims.

Thank you.

Derek Miles August 28, 2009

When you look at the history of the industry, aggregators first formed with a view of eventually selling. Therefore it was felt by aggregator companies that to protect their loan book they had to tie in their brokers. This has now developed into a bemonth because they have a lot of unhappy brokers who may have otherwise voted with their feet. What it has done is create a market for aggregator aquisitions. An aggretator is a far more saleable commodity if there is certainty behind the trail book.

Current aggregators who do have handcuff agreements should see the benefit of having a more fluid broker system. It would make them more accountable to their members and thereby have a happier family. Aggregators can target broker segments and therefore keep brokers more attuned to their market segment - much easier to manage and support. So the challenge is for these large aggregator groups to change their agreements and build more sustainable businesses.

English Bob August 28, 2009

I agree totally with Mr Kolenda. Unfortunately, things are unlikely to change any time soon as the president of the MFAA is the worst offender.

MMA August 28, 2009

To Derek Miles

Derek, I’ve been a broker longer than you have. I understand the industry well, thankyou. I’ve no problem with my aggregators ( yes, plural ) and/or the lenders with which I deal direct. The security of my trails is rock solid, no matter what direction I take in the future.

I could equally say to you - please don’t assume that 15 years in the industry makes you an authority, or that those with a different opinion to yours are inexperienced, making unfounded criticisms or outlandish comments.

Bernadette August 28, 2009

Most aggregators earn enough from the upfront and trails along with way. I have paid my aggregator over $100,000 in commissions - money for nothing really - no real support, sitting back while banks cut our comms by 35%. I should be able to take my business elsewhere, but of course I can’t - tied in with those handcuffs……………

broker form the 'burbs August 28, 2009

Just an open question here.

In 1994 (i.e. 15 years ago), who were the available aggregators at the time that provided broker friendly terms & conditions?

From memory, AFG started their aggregation offer in 1994 and Mortgage Choice started up around 1992 and I think that Choice Home Loans also kicked off around 1994.

Of course Aussie John kicked off as a non bank lender back in 1992, but it’s hard to equate this earlier ‘lender’ status with the question I pose here.

I’m sure there would’ve been some smaller players out there at the time (not national), but if I wanted to sign up as an ‘independant’ broker back in 1994, and expected to get reasonable contractual terms (both in split & exit terms) who would that of been?

Cheers

Will August 28, 2009

Absolutely. Aggregaors should NOT have the right, nor be permitted to handcuff brokers & originators to them on theat of lossing trail commissions that were generated by the broker or originator.

Personlyy I think it is a very questionable practise.

Xerxes August 28, 2009

Hard to disagree with John Kolenda.

Derek Miles comments are on the money. There were few options available in the past.

No intelligent broker today would sign up to some of those old broker terms.

I have changed aggregators once in the past and I can advise from personal experience it is no simple task (even with good conditions in your aggregator contract).

NAB taking a 30% vice grip on brokers in Challenger buy out is an interesting curve ball to throw into this mix.

Once banks own the majority of aggregators, how accomodating are these Bank owned aggregators (with obvious conflicts of interest) going to be to brokers switching aggregators?

Comment August 28, 2009

A lot of brokers probably think they are bound more than they actually are. Pay some money (a group of you split the cost), and ask your solicitor to get an opinion from a barrister - they are the guys that are used to fighting these battles. Think outside the square, and definitely don’t assume, for example, you might be able to form another entity. John sounds sincere, but a broker that recently switched to Loan Mart told me she was most dis-satisfied with them - so the grass may not always be greener.

Lender4Life August 28, 2009

I have a suggestion , why don’t you take a punt and put one through the courts, might cost you a $1MILL but hey you will find out.
I wouldn’t want to get to the High Court though… unless your Mabo….

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