hey mortgage detective if bank ceo's didnt get paid millions of $ in bonuses then they could make the interest loans cheaper nd the borrower would get better deal. Your argument is tottally thoughtless. Without the commissions brokers get there would be no brokers thus there would be no better deal for borrowers. If tradesman didnt get paid for doing a service then the cost of building a house would be much cheaper thus the borrower would benefit. Can you see how ridicullus your argument is. The bottom line is brokers do a great job and are very important in keeping banks honest and allowing smaller banks or credit unions to make money also and not just have 4 players in the market where thus they can manipulate the rates they charge us. Brokers will never fade or die because consumers and lenders need them.
Hey Greg Reid. i think your model of a service fee upfront and then a refund on the commission is a really good strategy, this way the client and urself make money and no one losses. the problem is that banks might start to not offer the upfront commission and then the client will suffer but none the less i think your model is really good.
Thanks for your comment.
The lenders most likely are not aware that I refund or that I even charge a fee for service, nor would they care. Irrespective of what many lenders claim, brokers are a viable sales channel for them that if they want to grow their market share, they need to continue to cultivate. They took the opportunity of tighter credit under the GFC to substantially drop brokers commissions and under the guise of ASIC and the NCC may take the opportunity to eventually drop trail commissions as well.They have made many millions as a result and it shows very clearly in their profits announced, even with the big provisions for bad debts that did not eventuate. They were only ever a tactic to help reduce reported profits when they took their increases above the RBA increases back in 2008 and 2009.
Non branch lenders will continue to use broker channels as they do not have the sales presence otherwise and brokers are only paid on commission so they are a cheap and variable cost, only getting paid for work introduced. With easier credit now, lenders are starting to offer larger discounts to attract more business again. It will be an interesting next couple of years to see how this evolves.
I took a strategic position, what do I do well and what can I offer that distinguishes me from 99.9% of other brokers out there and that is to service the multiple property investors with clear strategies that are individually designed to achieve their goals. As the GFC has tightened credit policies, what worked prior to 2008 no longer works the same way and property investors need to place far more attention on being able to show they can service to obtain the next loan to continue to build their portfolio.
Good luck with your investing
GregGidday Eloi,
Sorry, you lost me…
eloi wrote:Your argument is tottally thoughtless. Without the commissions brokers get there would be no brokers thus there would be no better deal for borrowers.My argument was that commissions should continue which is why I wrote that…
mortgagedetective wrote:I don't agree that commissions should be done away with
It was Greg that stated commissions should be done away with and I also agreed that Greg's model was heading in the right direction along the lines of borrowers agents. Although I support the borrowers agent model, I don't think there is a single model/answer and they all should be able to compete for the consumers business. Just like I believe rebate brokers should be allowed to exist alongside retail brokers – which is where this thread started.
I firmly believe the more models there are in the market place, the more choice is available to consumers and certainly lender paid commissions promote that diversity.
If I've misunderstood something, please let me know.
Hi Michael,
Just wondering if the saving is 30k in today's term, simply by choosing a different type of agent, how come it is not a well known strategy? I have never known this.
The extra skill /service is definitely not worth 30k to me. To simply prove the point, I can use a moron agent, and pay an accountant 10k to fool prove it. I still save 20k.
Hmmm, Interesting, I will have to look into that strategy.
Thanks Whoper123
Gidday Whoper123,
Yes that saving was the present value for the $80,000 saving on the sample loan.
It was calculated by Dan42 after feedback that the saving should be subject to discounted cash flow analysis, although it's fair to say that using discounting methods is not standard mortgage industry practice when making comparisons. (I'm not saying that it shouldn't be).
Dan42 wrote:What Alistair is saying is that the saving is over 30 years, so it is not worth $80k in real terms. My hurried Discounted cashflow analysis, at a rate of 8% suggets it is more like $32k in todays money.Still nice, but not as nice as 80k.
You can find that quote and general discussion on this page.
Thanks for the question and sorry for the delay in responding.
whoper123 wrote:Hi Michael,Just wondering if the saving is 30k in today's term, simply by choosing a different type of agent, how come it is not a well known strategy? I have never known this.
The extra skill /service is definitely not worth 30k to me. To simply prove the point, I can use a moron agent, and pay an accountant 10k to fool prove it. I still save 20k.
It's $30K in todays dollars over the life of a 30 year loan, or $1000 a year. The $30k is achieved by paying the rebated commissions into your loan. The beauty of compound interest does the work for you.
If you took the rebates as cash, the value would be much, much less.
Dan42 wrote:If you took the rebates as cash, the value would be much, much less.
Gidday Dan42
Some brokers direct deposit to your loan on a monthly basis unless otherwise directed so it is as close to cash as you can get.
It's probably fairer and perhaps more accurate to say if you redraw the cash from the loan account, the interest and finance saving would be less, not the value.
If you then spent that money on 'lifestyle' the value is hard to determine.
However if you took those refunds and invested them into something with solid returns, the value could be more, much more.
mortgagedetective wrote:Dan42 wrote:If you took the rebates as cash, the value would be much, much less.
Gidday Dan42
Some brokers direct deposit to your loan on a monthly basis unless otherwise directed so it is as close to cash as you can get.
It's probably fairer and perhaps more accurate to say if you redraw the cash from the loan account, the interest and finance saving would be less, not the value.
If you then spent that money on 'lifestyle' the value is hard to determine.
However if you took those refunds and invested them into something with solid returns, the value could be more, much more.
But that's my point. Not to go over old ground, but the broker is not depositing $30,000 into my account. It 'becomes' $30 grand due to the power of compund interest. It is a $30,000 saving on interest on the term of the loan, if you choose to leave it in the loan.
If it is taken out of the loan, it is easy to calculate. It's the amount you receive in cash, pure and simple. And it would be a hell of a lot less than $30,000 in today's dollars.
I was thinking of refinancing my mortgage to the Heritage Building Society 3 year fixed rate of 6.75%.
From what I can see on the Mates Rates Mortgages website (http://matesratesmortgages.com.au/mortgage-lenders/mortgage-broker-commissions), Heritage gives the following commissions to its brokers:
Upfront Commission: 0.605% inc GST (0.55% exc GST)
Trailing Commission: starts at 0.165% inc GST (0.15% exc GST) and gradually increases the longer the loan is heldMates Rates Mortgages gives the consumer 100% of the trailing commissions excluding GST under the ORP system, whilst YourShare gives 50% of the trailing and upfront commission in the first year (ex GST) and im not sure what percentage of the the trailing commission for every year after that.
Which broker do you think is better for a loan amount of $160,000
Which broker you should go with? How about the one that:
-will structure the deal correctly
-know's which deal is best for your circumstances
-is up to speed with current lending criteria, products and policies
-answers your questions
-if you're an investor – preferably one with investing experience
-understands your long term plans and helps you build your portfolioI wouldn't neccesarily opt for the one that gives you back $10 per month.
Cheers,
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi to all
i was just recently posting about the same type of service. I was looking at refinancing and found a financial cash-back company through a promotion in Money Magazine and decided to ask the question on here, and do some research myself, to see what the 'deal' so to speak was. So far i am pretty impressed. By signing them as my broker i am rebated the trailing fees and commissions on a yearly basis, plus going through the promotion i receive an additional $500 on settlement. i have now signed over my super as well. For me, this is brilliant, and i understand why people are skepticle on the matter, as i was, because its essentially free money, or my own money that i would not see otherwise. I think more people should be looking into this, there is essentially nothing to lose and extra cash to gain.
Regards
Mark.p1955Trailing commissions are generated on a number of different financial products and home loans are not exempt. The average home loan trailing commission is between 0.15% and 0.20% of the loan balance. Trailing commissions are paid to mortgage brokers by the home loan providers to encourage sales of their product. When you deal directly with a bank to open a new home loan account, the fact that the bank doesn’t pay trailing commissions to a broker simply increases their profits.
This only proves the true value of financial cashback services, as it offers consumers a chance to get the advice they want and need, and to get the trailing fees and commissions paid back to them
For people who do not want advice, and consider brokers to be simply a service for providing a comparison of lenders then rebate sertvices are probably appropriate. However, there is considerably more that goes into the final cost of a loan or porfolio of loans than just interest rate, further their is opportunity cost to investors if they miss out on opportunities because they have not received sound advice as to what is possible.
Personally I do not rebate commission and have actually started charging for my company's services on top of keeping 100% of commsions. How is this justified? What many people do not realise is that there are a vast number of ways to structure debt and repayments that can save literally thousands of dollars. As an example we recently dealt with a gentleman who had only a PPOR and one IP, but was on a realtively high tax rate and was eligable to access his super through a transitioin to retirement pension, in this case setting up his repayments in the most advantageous structure, tax wise, has given him a potential saving in excess of $70K over 10 years (the end saving is dependent on movements in interest and tax rates, and also taxation of super). In this case we could have put him into the highest rate product we could justify as being appropriate and he would still would have been better off using us and paying for it that receiving the lowest rate product plus 100% commission rebate from elsewhere (obviously we didn't put him into the highest rate product). The advice this client needed, and this is appropriate to a large percentage of investors, included the use of super, and so could only be given under a formal Statement of Advice from a licensed financial planner.
The simple fact is that there are very few brokers, and definately no any rebaters, who could have acheived such savings for this client. No bank officer could, most accountants couldn't. There are plenty of people and businesses that can provide this type of result, from this forum Richard Taylor springs to mind as one who could and would acheive a similer result, but you are unlikely to get such advice for free or even discounted, it is valuable and you should be prepared to pay for it.
End rant!
Regards
AlistairGidday Alistair,
So what you are saying is your client paid you a fee for service as a financial planner to get advice on income and loan structure as he could have done with any other suitably qualified and licensed planner.
If your client were a prudent investor as you seem to suggest, why wouldn't he have simply taken this advice (given he has already paid you a fee) and used any of the mortgage brokers that rebate their commission to broker the loan? That way he would get the best of both worlds and you still get your advice fee which seems like a pretty fair deal all around.
Upon charging your client a fee for financial advice, did your SOA disclose to him that brokering of the loan, which was clearly separate to that advice, could be arranged such that he would become the beneficiary of thousands of dollars of mortgage broker commission? Did you do the right thing and work out the dollar amount those commissions would reach including his potential savings? If not, aren't you breaching your obligation to your client as a fee for service financial planner?
Your assertion that a mortgage broker paying rebates could not have provided this advice is likely to be untrue. At least two that I can think of who rebate mortgage broker commissions are also licensed financial planners. One of those is a CPA.
Interestingly, the rebate mortgage broker who is a licensed financial planner and CPA comfortably admits that, when it comes to the mortgage broker commission rebates, his competitor offers a better deal. As a result he gets the financial planning, accounting business and some mortgage brokering business, his competitor gets the mortgage brokering work of prudent borrowers.
This has naturally emerged and is neither a formal or commercial arrangement between the two businesses. (i.e. no referral or kick back agreement). It also seems like the cleanest model of all as conflicts of interest that can harm the client are kept to a minimum.
Personally, I'm not a big fan of the fox looking after the hen house and believe that clustering Financial Planning and Mortgage Brokering services on a commercial basis unnecessarily risks harm to the client. I'm not alone on that one, see here: http://www.heraldsun.com.au/business/barefoot-investor/how-to-spot-a-spruiker/story-e6frfim6-1225961603906
mortgagedetective wrote:Gidday Alistair,So what you are saying is your client paid you a fee for service as a financial planner to get advice on income and loan structure as he could have done with any other suitably qualified and licensed planner.
If your client were a prudent investor as you seem to suggest, why wouldn't he have simply taken this advice (given he has already paid you a fee) and used any of the mortgage brokers that rebate their commission to broker the loan? That way he would get the best of both worlds and you still get your advice fee which seems like a pretty fair deal all around.
To get commercial advice, then go elsewhere just to save a few bucks is hardly 'prudent', it is unethical and poor business practice. Are you really promoting that sort of behaviour?
The rebating broker would be benefiting from the original broker's work. I'm sure you wouldn't rebate any of the trails to the original broker who has done all the hard work.
Dan42,
With respect, Alistair has declared that he charged a fee for his advice which means that it should be in the best interest of the client. Do you disagree with that idea?
And what's this about a few bucks ? $32,000 in today's' money according to your calculations on page 2 of this thread:
Dan42 wrote:What Alistair is saying is that the saving is over 30 years, so it is not worth $80k in real terms. My hurried Discounted cashflow analysis, at a rate of 8% suggets it is more like $32k in todays money.Still nice, but not as nice as 80k.
Even if it was $20,000, it still wouldn't qualify as 'a few bucks' to most prudent investors.
As for rebating trails, I'm only interested in looking after the borrower. I don't rebate commissions because I don't take them in the first place. Oh and I don't charge borrowers either.
mortgagedetective wrote:Gidday Alistair,So what you are saying is your client paid you a fee for service as a financial planner to get advice on income and loan structure as he could have done with any other suitably qualified and licensed planner.
If your client were a prudent investor as you seem to suggest, why wouldn't he have simply taken this advice (given he has already paid you a fee) and used any of the mortgage brokers that rebate their commission to broker the loan? That way he would get the best of both worlds and you still get your advice fee which seems like a pretty fair deal all around.
Upon charging your client a fee for financial advice, did your SOA disclose to him that brokering of the loan, which was clearly separate to that advice, could be arranged such that he would become the beneficiary of thousands of dollars of mortgage broker commission? Did you do the right thing and work out the dollar amount those commissions would reach including his potential savings? If not, aren't you breaching your obligation to your client as a fee for service financial planner?
Your assertion that a mortgage broker paying rebates could not have provided this advice is likely to be untrue. At least two that I can think of who rebate mortgage broker commissions are also licensed financial planners. One of those is a CPA.
Interestingly, the rebate mortgage broker who is a licensed financial planner and CPA comfortably admits that, when it comes to the mortgage broker commission rebates, his competitor offers a better deal. As a result he gets the financial planning, accounting business and some mortgage brokering business, his competitor gets the mortgage brokering work of prudent borrowers.
This has naturally emerged and is neither a formal or commercial arrangement between the two businesses. (i.e. no referral or kick back agreement). It also seems like the cleanest model of all as conflicts of interest that can harm the client are kept to a minimum.
Personally, I'm not a big fan of the fox looking after the hen house and believe that clustering Financial Planning and Mortgage Brokering services on a commercial basis unnecessarily risks harm to the client. I'm not alone on that one, see here: http://www.heraldsun.com.au/business/barefoot-investor/how-to-spot-a-spruiker/story-e6frfim6-1225961603906
You are correct that any financial advisor could have given him this info, but they hadn't. If he had gone dirtectly to a rebating service I doubt he would have either. Maybe if he had gone tou one of your two friends, But then what was the fee cost? The upfront commission subsidises the cost preparing an SOA, and also pays for the other knowledge and advice that most investor clients require, while the trail allows ongoing general advice to be given for no extra cost. People have to pay to get good advice, rebates don't reduce this cost, they increase it because they add the cost of administering and paying the rebates into the equation.
I tend to agree with you in a general sense regarding the roles of financial advisors and mortgage brokers. I don't give investment advice for this reason. Most financial planners do a very poor job if they try broking and it is probably the same the other way around. However, when it comes to loan structuring, which really is the most important job of a broker when dealing with investors, it is necessary to take the superannuation tax environment into account and you can't do this without being a licensed financial advisor. The crossover is necessary.
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