The landscape for Mortgage Brokers commission payments appears to have changed forever.  The banks are using the “Global Credit Crunch” as an opportunity to cut commission payments for Mortgage Brokers.

Westpac were first on the 15^th April 2008.

“Westpac has cut its upfront commission by 20 basis points to 0.50 per cent and the annual trailing commission, which is paid over the life of the loan, by 10 basis points to 0.15 per cent.

The current commissions = 0.70 per cent upfront and 0.25 per cent trailing – are worth around $1,800 and $750 respectively on an average $300,000 loan.

After the cuts, to be rolled out progressively over the next three months, the commissions will drop to $1,200 upfront and $450 for the yearly trailing commission on a $300,000 loan.

A Westpac Spokeswoman said the decision was driven by bank’s own higher wholesale funding costs, given there was no certainty when the funding pressure would ease.”

For the full article go to: http://money.ninemsn.com.au/article.aspx?id=446890

Ironically, Westpac have today announced a 10 per cent Half-Year profit. http://www.theaustralian.news.com.au/story/0,25197,23626913-20501,00.html

There appears to be little impact of the “Global Credit Crunch” on Westpac, yet Mortgage Brokers have been made to pay.

Yesterday, the St George Bank also announced cuts to its commissions for Mortgage Brokers. http://business.theage.com.au/st-george-cuts-broker-commissions/20080430-29kp.html

So what is the next step for Mortgage Brokers.  Maurie Unwin – General Manager of the Finance Brokers Association of Australia (FBAA) believes “Irrespective of who you are in the marketplace you must value-add to your business and not just stick to Finance Broking.  This is achieved by increasing your service offerings to your clients ie. Insurance etc.”

National Australia Bank (NAB) fully agree with this philosophy as well. “NAB have embarked on a charm offensive to win support for a model that would see Brokers become wider Financial Advisors.  The underlying message is the bank does not intend to cut “headline commission rates, but will reward brokers who can cross-sell other NAB products such as Insurance.” See The Australian. http://www.theaustralian.news.com.au/story/0,25197,23606964-643,00.html

NAB certainly has the right idea, but limiting the advice to only NAB products goes against the ethos of Broking.  Brokers must have access to a panel of Insurance Companies and choose the right product based upon the needs of the client.  Insurance is very different to mortgages, prices vary greatly on occupation, age and whether the client is a smoker.  Some insurance companies target the medical industry, others white-collar, some blue-collar and price accordingly. See example:

Mr. and Mrs Smith are both 35, non-smokers, working in IT.  They both earn $70k and have a mortgage of $325,000.  They have requested the following for both:

Life and Total and Permanent Disability (TPD) to cover their debt amount.

Trauma (Critical Illness) of $200k

Income Protection Monthly Benefit $4,375 with a 30 day waiting period.

Quotes were conducted on ProPlanner research software on 6 different Insurance companies of similar quality.  The price per month varied from $231 - $291. Upfront commission payable from the Insurance companies vary from $2,898 - $3,650 plus trail.  Affordability for the clients is less than 2 per cent of their wage

The financial benefits to Brokers are obvious, but there are many more benefits associated with value-adding to your clients.

Non-advice insurance products are widely accessible in the marketplace, but do not provide the same high quality cover and can also be up to 40 per cent more expensive.

In the coming months TMA will be conducting ONE day workshops for Mortgage Brokers on “Transitioning to Advice”.  These workshops will be conducted in all major capital cities with Guest Speakers from Insurance Companies, Financial Planning firms and Industry Experts. 

Stay tuned for details.

Scott Donnelly

Managing Director

Traineeship Management Australia