Me in today’s Crikey
It’s a dirty business but someone has to do it. Selling home loans that is. Now after a lifetime of howling protest about the commissions mortgage brokers make, the Australian Consumer Association – AKA Choice – is helping itself to some of those commissions.
Over eleven years ago I founded Peach Home Loans to rebate a large slice of the commission banks and other lenders pay brokers for selling their loans.
Did I say ‘selling’? Well yes, I did. Mortgage brokers are remunerated as salespeople – and for years it’s suited them to pose as independent advisors choosing the right loan for you. Among the things they don’t tell you is that they don’t cover the field, that there are loans available that don’t pay them commission and so they don’t write them.
That makes them like computer salespeople in a department store – people who often know a lot more about the product they’re selling than their clients and able to sell from a range of brands. The good ones try very hard to inform their clients and indeed to get them the best loan possible, both because they like helping people with their skill and because in a competitive marketplace, doing the best they can do for their clients is a pretty good recipe for their own self interest (See Adam Smith, 1776 for further details).
Since I founded Peach, the government has got in on the act, imposing heavy regulation on the industry including licensing. It hasn’t mandated that brokers inform their clients that they only sell a sub-set of the loans on offer. But it has licenced them so that today loan salespeople can advertise themselves as government licenced, which legitimates their posing as objective fiduciaries when they are remunerated as agents of the lenders.
Now Choice has teamed up with an organisation of calling itself One Big Switch the main players of which appear to be luminaries with links to progressive campaigning organisation GetUp.Lachlan Harris – Kevin Rudd’s press secretary when he was PM is a co-founder.
One Big Switch claims to be able to wring better deals out of the banking oligarchs using the power of bulk purchasing. It will “help ordinary Australian households get the discounts, terms and conditions that big companies and high net worth individuals get every day.”
Having seen a fair bit over the last eleven years, I’m sceptical. These kinds of claims are routinely made in this industry – see for instance www.ratealert.com.au and www.bidmyloan.com.au. There may be substance to it, or it may be mostly marketing. But there’s nothing wrong with a new commercial venture putting a commercial deal to the market and trying its luck. I wish One Big Switch all the best.
But it amazes me, utterly flabbers my ghast that Choice is coming along for the ride, and, as it confirms on its website, will pocket referral fees “to help cover the costs of creating and delivering the Choice Big Bank Switch campaign. . . . If the fees received by Choice . . . are more than the cost of the campaign, they will be directed entirely to future campaigns that will benefit consumers.”
The One Big Switch site seems less forthcoming about its revenue model than most mortgage broking websites. I can’t find a single reference in the main pages of its website to the commissions they or Choice will make, though the Finance Broking Contract on their site does disclose that they will be paid a commission – which will be disclosed to borrowers.