Brokers no more: arise ‘licensed advisors’

People who’ve read this blog for a few years may be familiar with my take on the regulation of mortgage brokers. I’m in favour of simple regulation which puts front and centre the fact that brokers should be thought of in the same way as fridge salespeople in a department store. So regulation should focus on

  1. Identifying rogues and running them out of town
  2. Informing consumers that brokers have inherent conflicts of interest related to the extent of commissions they receive and
  3. Solving disputes in a more cost effective way than our ramshackle court system.

Sadly this is not the way things have gone.  Organisations representing credit consumers – draw attention to rogue brokers and say that something must be done.  The something is regulation and so the government consults with industry about what it might like.  And of course it would like National Regulation as state regulation is the death of a thousand cuts.  So we’re heading to national regulation – in fact we’re pretty much there. The regulation has been past and is being rolled out to the industry which is running round getting itself compliant.  Peach Home Loans which hasn’t had a customer dispute in ten years of operations has to have  a written complaints procedure – which is pretty easily managed.

Meanwhile the Loan Market Group is reported in the industry magazine “The Advisor” to have “thrown its support behind the industry’s move from broker to ‘adviser’.

According to the brokerage’s chief operating officer Dean Rushton, the new laws will enhance consumer “regard for the mortgage broking sector”.

Under national credit reforms, anyone engaged in credit advice on home loans will need to register with the Australian Securities and Investment Commission (ASIC) between April 1 and June 30, 2010, or be appointed as a representative. . . .

“Brokers are a major part of the home finance industry and there has been a huge growth in people relying on brokers when they take out a new home loan or refinance,” Mr Rushton said.

“The broker’s job is to make the task of purchasing a property and obtaining finance as stress-free as possible. Brokers who meet the needs of their clients and maintain customer focus help give the industry a good name.”

Mr Rushton said with interest rates on the rise, consumers were shopping around for the best deal and, in turn, starting to understand the benefits of using a broker.

“With brokers expected to play an even more influential role in the provision of home loans, a new national licensing system which enhances their credibility is a great step forward,” he said.

“An experienced mortgage broker is best placed to advise customers on the range of options available and in the current market there is plenty for prospective home buyers to choose from.

“Lenders will appreciate that a broker can provide them with the right information and do a lot of the leg work in securing the home, personal or business loan.”

Oh – and while I haven’t looked at the details, my bet is that there’s nothing there to force the ‘advisors’ – sorry ‘licensed advisors’  – to explain that they’re really salespeople.

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James Farrell
James Farrell
14 years ago

Paradocically, the 7.30 Report tonight had a story about Iselect demanding up-front comissions from its health insurer clients. The regulator in that case tore up the rules because it was too hard to enforce them. That company is expanding into house loans, by the way.

Nicholas, is there such a thing as an established ‘theory of brokerage’ — that formally defines ‘broker’ vis a vis ‘agent’, postulates ideal conditions under which the broker will optimise for the client, identifies optimal fee systems, and so on? (The wikipedia entry is just plain confusing.)

14 years ago

When I wanted to buy a house I talked to St George because I had a long history of saving with them, and so did my wife, going back decades (before we even met each other). I discovered that two long-term customers with many regular wage payments and an obviously stable employment get nothing attractive in loan terms. I didn’t get the impression anyone was really interested… polite, but “take it or leave it”.

I talked to the guy from Aussie and he went through a much wider range of products, was very helpful on the decision between fixed interest and variable interest, and managed to beat the St George rate (but not by a huge amount, none of the rates were far from each other at the time). He also explained that variable rates change regularly and different companies take the lead so consider the structure of offset accounts and redraw restrictions. I did indeed go with Aussie and picked the variable loan that was offering the lowest percent at the time, with an offset account (not from any of the big banks as it turns out).

My point is that the deeper decision is being made by the banks. As long as the banks don’t try real hard to compete with the mortgage brokers (and show no loyalty to long-term customers), the customers will go with the mortgage brokers. You can have licenses, regulations, whatever you like, up the whazoo, none of that makes any difference.