Choosing a Broker - a thread for the newbies

Hi all :)

I feel compelled to write this post because last week I had a significant number of people chatting to me after getting horrendous advice from their brokers - advice that could cost them quite literally over a hundred thousand dollars over the life of their loan/s.

If you've found yourself here on the SS forums, you know you have access to AMAZING brokers who know about structure, tax, investment and more. By asking and learning here, you yourself have the opportunity to learn more than many brokers will know about loan structure, tax effects, and the best way to squeeze as much from your properties as possible.

Please do not assume that your local broker will know this stuff - they probably won't. It's not taught in broker school and it's not default broker knowledge.

Please don't assume your broker has the knowledge required to set you up properly simply because he or she is a broker!!

You need to protect yourself, and you need to ask questions so you can be sure they understand investment lending and can relate to what you're doing and what you're hoping to achieve.

Some good questions to ask/conversations to have are -
  • Do you invest in property? If so, how many do you have? What kind of investor are you?
  • Talk to me about the tax implications of the loans we'll be using. ( Hint - "there aren't any" is the wrong answer)
  • Is there any particular structure you'd recommend for my loans? Are you a cross-collateralisation fan-boy?

If you get faced with a blank stare at any point of this conversation, you can be pretty certain they aren't the broker for you and it might be best to keep looking.

Any other key questions/convo points you like/recommend?
 
If you don't fully understand why a broker made a particular recommendation of the lender and product, you need to go back to them and clarify this.

The MFAA also publishes a list of "10 questions to ask your broker", but frankly every broker has seen it and should have decent answers. The questions are fairly entry level as well.
 
I think its a good idea for clients to have an expectation that their broker will include loan structuring, future planning and loan advice as part of the service.

A brokers role should go well beyond just processing the loan at any given lender. Clients should expect this.

Most importantly, a broker should be open, transparent and justify their recommendations. If they're recommending a lender, you should question why. Is it because their a good early lender to use or is it because theirs a commission promo running?! Of course they wont tell you the latter, but if you dig enough it wont be too difficult to know whether the brokers acting in your best interest or not.

These days, with the competitive dynamics in the industry - I think to survive against online lenders/banks/other brokers - this will become increasingly part of the service delivery.

I'm not so sure just because a brokers on SS their amazing. Their are definitely plenty of gurus here with varying degrees of success that have large contributions and obvious 'runs on the board' when it comes to credibility.

Adding a few questions that are worth asking:
1. What experience do you have?
2. How many clients do you have? How many clients with large portfolios 5-10+? Someone raised this a while ago on the forums - its just a guide to seeing whether your broker can map out a path to your goals.
3. Raise questions about your future scenario - this is about planning. E.g. i'm thinking of taking out a second casual job to borrow more, does this work?

Personally I find doing a face to face is the best way to realise who you are getting into business with. It doesn't take too long to know what type of broker your dealing with and whether you're comfortable with them.

Cheers,
Redom
 
The thoroughness of a brokers "fact find" document will also give you an idea of how much detail they will use in product selection/strategy formulation.
 
The thoroughness of a brokers "fact find" document will also give you an idea of how much detail they will use in product selection/strategy formulation.

That's an interesting thought.

I don't know that I'd select a broker based on this however. For years we used a quick 'one pager' that gave me some very basic info to build a structure around, but it didn't really get to the guts of anyone's problem. I preferred to have a conversation to draw this out.

When it comes to problem solving at this level, an interactive conversation conveys far more information than any fact find ever could.

About 12 months ago I revamped our fact find into something a bit more comprehensive, and work on this is still ongoing. It's more for internal efficiency purposes however. In some regards this has taken away some elements of the discovery process IMO.
 
The thoroughness of a brokers "fact find" document will also give you an idea of how much detail they will use in product selection/strategy formulation.

Hmmm...thoroughness. I'd adjust to, what questions is your broker asking when 'fact finding', not quantity. More specifically, if the broker is interested in your 1,3,5,10, longer term goals etc.

Having your broker fill out pages and pages of docs to get info of you mightn't mean much.

Cheers,
Redom
 
That's an interesting thought.

I don't know that I'd select a broker based on this however.

Neither would I, but it would give me an idea of how interested they are to get across your strategy vs a tick and flick to WBC/CBA/whatever with little thought etc
 
Brokers are unable to give tax advice, at all, unless they are lawyers and/or tax agents.

This is true, however it's imperative that they have a good understanding of the tax side of things whether they are a registered agent or not.

That's the whole problem - too many have zero idea about the implications of the loan structure they're recommending.
 
This is true, however it's imperative that they have a good understanding of the tax side of things whether they are a registered agent or not.

That's the whole problem - too many have zero idea about the implications of the loan structure they're recommending.

Not Terry. He's a broker, accountant, lawyer, Kung Fu master and that's only during the day!
 
Brokers are unable to give tax advice, at all, unless they are lawyers and/or tax agents.

Absolutely.

It's also imperative for a broker to have a good understanding of these issues so they don't implement a solution that destroys the good advice you've been given from your accountant or solicitor.

For many of these issues I've discussed them with clients and direct them to their accountant for specifics. People often don't know what to ask their accountant and many would never seek tax advice unless their broker told them they need it. It's not about giving people direct tax or legal advice, it's to give them some guidance on the sort of questions they need to ask the appropriately qualified professional.
 
Could be worse - possibly trolling. :rolleyes:

No, could we worse. He could be living off equity :eek:
Anyway, lighten up a little.

Another angle would be that your broker will be as good as the questions you ask him/her. That would lead to a more thorough understanding of the situation which would benefit both parties.
 
Adding a few questions that are worth asking:
1. What experience do you have?

Experience is important but can be deceptive. I've seen very new players like yourself who demonstrate more knowledge than middle age brokers who've been writing for 20 years.
 
Another angle would be that your broker will be as good as the questions you ask him/her. That would lead to a more thorough understanding of the situation which would benefit both parties.

I think the opposite - the broker is as good as the questions they ask you.

Your broker should be able to draw you to things that you may not have considered at all before. For eg, it's hard to ask about structure if you don't know what it is/whether it's required. Your broker should be able to lead (but hopefully not dominate) the conversation and maybe leave you a little more educated than when you came.

Depending on the client of course - some clients know everything ;)
 
I think the opposite - the broker is as good as the questions they ask you.

Your broker should be able to draw you to things that you may not have considered at all before. For eg, it's hard to ask about structure if you don't know what it is/whether it's required. Your broker should be able to lead (but hopefully not dominate) the conversation and maybe leave you a little more educated than when you came.

Depending on the client of course - some clients know everything ;)

You're assuming you have all the questions and all the answers though. Not every client is the same.
 
Experience is important but can be deceptive. I've seen very new players like yourself who demonstrate more knowledge than middle age brokers who've been writing for 20 years.

Agree with you Jamie (and thank you).

Knowledge/skillset definitely trump the 'time in industry' figure.

It'd just part of the package of questions worth asking a broker if you're in the process of interviewing them.

Personally, for an investor that knows what they want to purchase (investing plan), I think its best to lay out your investing strategy and see how a broker responds. To me, this sets apart the good and the great (in terms of skillset/knowledge/etc). You'll also start seeing differences in responses from the brokers here too. Then pick someone who's come up with a finance strategy that you're comfortable with.

Cheers,
Redom
 
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