So what is the big deal about brokers anyway?

[Coen]

I just don't get it. Why does everyone assume brokers are so great?

I work in the finance industry but my employer isn't in the broker market (they were in the past though.)

As far as I can tell with my personal experience on about 300 broker files from 2-3 years ago this is what I have come up with:

80% of them have had major problems with the loan at some stage, example: settlement delayed due to communication breakdown between broker and bank/LMI.

60% of them are not what the customer expected, examples: broker has sold low rate HL with no offset facility and yet it's allways the bank's fault when we have to tell the customer they aren't eligible for offset, also fixed rate loans that the customer beleives they can redraw from because they are told they can do this when the loan is taken out.

50% of them are now being refinanced to more expensive and inflexible loans by the broker who originally set the loan up purely because my employer has withdrawn from the broker market, example: new loan has a +0.4% difference in comparison rates for the same featured loan yet they want to spend over $1000 in establishment fees and pay more every month for the same product.

80% of people who use brokers believe their broker knows everything, example: lady comes in, wants to sign a release authortiy because thats what she has been told to do, you ask why she is refinancing, she replies "Because my broker said this loan has no redraw and I want to redraw to go on a holiday," you show her a copy of her schedule showing she can redraw for free and invite her to sign a redraw form, her reply: "Oh that document must be wrong, my broker said I couldn't and he knows because he sell's lots of different loans."

Brokers will not sell a loan unless they are paid to. I only know of 1 broker of about 25 in town that will actually disclose what products they will not sell and advises their client to look at those products themselves. The rest are just like "We sell home loans."

An absolute maximum of 15% of broker files are geniune so I guess you can say that about your brokers too.

 

[geoffw]

It's an industry which by its nature can attract a lot of cowboys.

Whenever I've recommended people to see a broker, I'm assuming it will be one of the brokers who contribute to the forum, who show by the nature of their replies that they understand their products thoroughly.

I've personally dealt with Mr Ed, who was able to get my Subway deal up and flying despite huge amounts of difficulties.

 

[Rolf Latham]

Ooooooooooooohhhhhhhhh

hasnt someone had a bad day

Must say I dont think my clients would tend to back your comments, nor any of the brokers on this forum, nor most brokers that I know.

I can only hallucinate that the files you are looking at dont belong to a brokerage company, they belong to a shark group. If thats true, its no wonder you draw conclusions that are way out from the general experience

Yes, there are challenges, there will always be in any industry that pays comms. This is why you should deal with people that are referred to you by friends or relatives.

BTW, in the last month we have written 6 loans that did not pay us any money.

I think I will leave it at that, with this closing comment - one should never assume anything.

ta

rolf

 

[ani]

Hi Coen

I've always had much better results through a broker than dealing direct with a bank. The brokers are up to date with what are the best products for my circumstances at the time. Saves hours of research!



I'm sure there are sharks out there as in any industry,but the 4 I've dealt with here and in NZ have been just great.

 

[Rolf Schaefer]

We have assisted hundreds of clients in achieving their dreams of holding an investment property portfolio. By doing so we sometimes also have to re-finance due to serviceability or product restraints.

Our loan book has a retention level of 99.5%, we have only 'lost' 5 loans due to re-finance by other brokers. So we are certainly not in the business of churning or re-financing.

Just like Rolf L we also do loans were we don't get paid at all; but we always have the best interest of our clients in mind.

So please be more careful with your statements about brokers. Just because your bank doesn't use them anymore doesn't mean they are all bad. By the way, isn't it funny that the one bank that doesn't use brokers in the home loan finance area is sourcing over 80% of their business through brokers in equipment/leasing finance (according to a report in the AFR).

PS: Bagging brokers seems to part of some employers corporate culture; it even starts with the CEO. This CEO came across from Westpac which also had a culture of not really wanting to work with brokers. However, meanwhile after losing market share they are courting brokers to re-gain lost market share.

PPS: And yes, I do agree, there are lots of cowboy brokers out there.

 

[skater]

I dealt with 2 brokers who had no idea. Then I contacted one of the brokers on this forum & haven't looked back. I think if you just want to buy a PPOR there are many reputable brokers that can help you out, but if you want to build a portfolio a broker that has experience dealing with investors with large portfolios is invaluable.

 

[Simon]

Last week I had a lady call me with four properties and wanting to buy a fifth. Her lender told her no and she was after me to refinance the lot. Money for jam most brokers would think.

I gave her three pieces of advice and asked her top reapproach her lender armed with those tactics and see if she cannot get them to agree. If they do then they will keep a good client and she will save fees etc. Is a win win situation with only one loser and he doesn't matter!

Am I big noting myself? The only reason I write about this instance is that I believe most of the brokers I work with and know well would do the same thing. In fact the broker who introduced me to this game was my broker who suggested I use a lender that didn't use brokers thus getting me a cheap deal and denying himself a comission.

I suggest that your figures are not accurate - funny how they are all very round figures.... I go a little further to suggest that this also might have been a reflection on the type of marketing done to brokers by your employer which attracted the ratbags of our industry. I am regularly approached by lenders offering higher comissions and higher trail if I can sell a higher loan, loans where I set the rate and the higher I set it the more I am paid etc.

There are a large number of rats in this industry and I hope that the slowing of the property market will see the majority of them move onto the next money making idea. The best piece of advice is to use a broker recommended by someone you trust. Preferably someone experienced!

All the best,

 

[Qlds007]

Wow

I am with Rolf havent we got out of bed the wrong side.

Do we assume that you are with BoQ?

There are certainly bad eggs in every industry and i think the majority of us brokers would like to see those weeded out as quickly as possible.

In saying that i can think of several notorious cases over the last couple of years whereby major banks have had employees comit mortgage fraud to their own gain.

The majority of brokers do not try and refinance clients unless in doing so the client will benefit.

A recent case I had was for a client with a complex Trust and Pty Ltd structure who had his loan set up as a lodoc loan by the lender direct. On questioning why he was paying over 1% higher than the SVR the loans officer told him that it was easier to process the loan as a lodoc loan. By obtaining copies of all of the related entities accounts and following the money trail we managed to refinance the whole deal plus an additional $400K borrowing at a 1% less than he was already paying.

Those lenders who cut brokers out of the market will loose market share as no lender can provide the client with a full spectrum of product. Each client's needs, circumstances and requirements are different and a good broker can source this for his client.

 

[IanF]

As always there are good guys and bad guys in the industry.

Personally I know:
1 excellent broker (RL)
4 were useless, I knew more than they did
1 was downright dangerous, all his clients got low docs because it was less trouble and better commission for him!

My advice - use a broker from this forum. They have a reputation to keep up!

Ian

 

[Qlds007]

Brokers and Lodoc

Ian

My sentiment exactly. A lodoc maybe easier for the broker but not necessarilly better for the client.

 

[Coen]

Woah woah woah.

I think you have taken my post the a little bit the wrong way.

Let me clear some stuff up for you. I wasn't taking a shot at any brokers in particular on this forum (infact from what I have read it seams like you all know what your talking about and i dont think it would be too bad working with or recommending you) it was just a genralisation about the brokers I have had the misfortune of dealing with which all happen to be in my locality.

I stand by what I have said (including the %s i have given) in my post about the quality of the files I have seen peronsally which all have come from local brokers.

None of which (the local brokers) will write loans anymore if they aren't paid for it.

I guess where I live must just be a crook broker magnet as the town is full of miners on too much money for their own good.

One of the brokers i am refering to is actually a pawnshop that decided to cash in on the current market boom about 2 years ago.

As for the comment about loosing market share, I don't really think its that much of a deal as honestly, broker loans are hardly profitable for anyone but the broker. But by not being in the broker market its just taking the presure off the banking competition. Thats what I would be more worried about.

As for the leasing market, requirements for commercial lending are alot greater then those of HL lending and because of this I have found most crook brokers can't be f'd with the extra work for a similiar commission to a HL. Broker lease files I have seen are alot better then the HL files because of this.

 

[Rolf Latham]

Hiya Coen

Heheh, isnt funny, just today I notice that one of BOQ loans, settled with mega hassles, has fallen off my trail book. Now this just happens to be a loan where the borrower specifically asked that the new loan be a separate top-up, mainly for tax reasons, but to also not upset my trail comm, because they value what i have done for them. Despite a number of specific written insructions from the client the BOQ franchisee decided to re originate the entire loan. I wonder why


I would not agree with the notion that broker introed loans arent profitable.

Why ?

There are business that are broker only. If they didnt make a dollar I then to think they would not exist. Good examples include Homeside, Colonial, Heritage (outside of Qld), Macq Bank etc.

What one must not forget, yes the lenders pay an upfront and a trailing comm, but in fair exchange, there is no marketing, no sales people, no mobile lenders, no cars and a million other overheads for the lender to carry.

The industry is quite efficient which shows in the slim margin cost differences between the major lenders products.

Even with broker costs in the deal ROI for most lenders is still over 20 % which isnt bad.

ta

rolf

 

[Coen]

It's purely re-writing a loan. Everyone does it. Still doesn't make it ethical, personally I would contact the OM of the OMB that has done it and ask for a please explain. This happens alot and most of the time funds are put back under the corrent branch as RMs look down apon this practice. Not sure if it would work with a brokered loan but it's worth a try isn't it?

Reason I say about brokered loans being not a profitable is because say for example a NAB 1 year interent only fixed rate loan. That rate is 6.95% at the moment. NAB's 12 month term desposits are returning 5.55%. That's only a 1.4% difference. How much is your tail on a $250,000 loan like that? The bank still has to foot the bill for statements, internet banking, staffing and storage to take care of the files. After you take all that out there isn't that much left over % wise, and then you still have to take out the tailing commissions.

In previous jobs I have worked in when a broker refinances a brokered loan away there honestly isn't much of a care about it. Like I said, where I live there are alot of cowboy brokers and the files are most of the time more trouble then their worth.

 

[Kristine..]

Hi Coen

Actually, the NAB doesn't pay trailing commission.

Most trails are about 0.02% per month on the balance of the loan.

Don't forget, every step of every financial way a commission is paid.

Credit cards, bank accounts, term deposits, insurance, annuities, superannuation, the list goes on.

Bank lending officers get their weekly pay, plus a settlement commission, although most do not get trail (they are paid wages, anyway).

Independent brokers are an interesting phenomenon, more akin to the old-fashioned life insurance brokers than to any modern working example.

Most of us don't charge the customer any fee for service, wait for about six to eight weeks after settlement to receive payment, and the 0.02% trail is fragile, particularly in this day of flexibility with loan products eg salary crediting which is great for the customer as it reduces their balance - and thus the commission to the broker.

I am about to settle a loan for a customer, who I first interviewed in July, 2004. The original application was approved in August, 2004 and loan documents issued in November, 2004. Due to circumstances beyond his control, with any luck that loan will settle in September, 2005. I cannot even guess my phone bill for that one loan, nor the hours and hours on the phone, or time involved in emails or interviews or following up with the bank, but his interests are above mine: He is the customer, without whom I would have no business.

Lenders which do not accredit brokers to introduce customers to them are finding that Australians are becoming significantly more inclined to research loan products, compare lenders, and to seek information. It is just not possible for the busy loans officer at the local bank or building society to provide that level of service when working to a quota and working under pressure.

Many times a deal morphs from the start to the end: The loans officer has no time to involve themselves with structuring a deal, willing though they may be to try and do so.

Before the boom, the life of the average loan was a little above seven years. People pay out their loans, sell houses, win the lottery, whatever.

In recent years as people came out of fixed rate periods, anguished that during that time variable interest rates had fallen to 5.95% or lower, to an historic 40 year low, those very customers took their revenge and refinanced by the thousands.

During this refinancing frenzy, the life of the average loan fell to an unprecedented two years.

Two years.

Also during this time, general brokers made steady inroads into the lending market, but it must be kept in mind that brokers are accredited by the lenders, in other words, if the lenders didn't want us, we wouldn't exist.

The combination of disillusioned borrowers and astute lenders made possible the rise of prominence of the independent broker.

There has always been finance brokers, introducers and agents, and with the deregulation of the banks the way was open for banks and other lenders to market directly to the public. Mobile lenders operating under a mono brand model, however, are still just preaching to the converted. Franchised or employed bank representatives, whether mobile or desk bound who cannot offer multi-brand choices are not brokers.

A stock broker, an insurance broker, or a mortgage broker have one basic principle in common. If we don't do a good job we don't get paid. We must pay for our own training and education and insurance, kit ourselves out, pay derivative commissions to our industry groups, and earn our own livings. As with many businesses, it is the survival of the fittest. If you aren't any good, you won't last long.

I appreciate the comments you have made from your own observations, Coen, however truth, like beauty, is in the eye of the beholder. In your perception the great majority of your own bank's employees engaged as mobile lenders - did I get that right - plus independent brokers accredited with your employer, were incompetent at best and the rest were dishonest.

Honesty, morals and ethical behaviour filters down from the top, it rarely grows up and influences from the rank and file.

If your employer selected, hired, trained and retained people who did not act fairly, ethically, honestly and in a professional manner, the responsibility lies with the people at the top who make these decisions and influence these choices.

Obviously, the culture has changed as you continue to work there.

Now, I must ask you this:

If a customer walks into your premises, and asks for a loan feature which you don't have - let's say capitalization of interest during a construction period - do you say 'I'm sorry, but Bank Z does not offer that facility. However, Lender Q, whose offices are just opposite, does offer that feature, may I suggest that you take your business to them' or do you just ask them to take a seat and a loans officer will be with them shortly?

If you do not advise the customer of options not provided by your employer, choosing instead to stay silent, then what have you done? You have put your own and your employers' interests ahead of the customers benefit.

If a customer says to a broker 'I want to buy a 25 metre square studio apartment, I receive Centrelink income plus $100 per week from delivering morning newspapers, can you help me get a loan?', the independent or multi-accredited broker will endeavour to source a lender which offers a loan product which will do what the customer has asked for.

Coen, it is good to have these discussions and to raise issues of moral behaviour for debate. Socrates, when asked what he was doing with a lit candle in the middle of the day, replied that he was 'looking for an honest man'.

Independent brokers stand outside of each banks' or lenders' behaviour, policies or ethics. Independent brokers may not be perfect, but in an imperfect world a broker who sits up till midnight searching his collection of Lender's Guides for the loan feature you have asked for may be the closest example of an 'honest' man you will have met this week!

Regards

Kristine

Yes, of course, the male does include the female, but I am not going to edit Socrates’ quote by inserting / woman, the classic scholars would be grinding their teeth in a frenzy!

And of course there are female brokers (My Goodness! What will they think of next!) Some of my best friends are brokers! Some of the best brokers are my friends! Some of my friends are the best brokers? (sigh) yes, perhaps I'll just leave it there ... too many Lender Guides in one week have softened the brain ... Did you hear the one about the block of nine flats which necessitated four separate lenders to finance the purchases? And what about the scenario which ......

 

[agent 86]

Great post Kristine.

Well put.

A86

 

[StuartW]

To me most financial planners seem like selfish sharks. However, their service (i.e. financial advice) makes sense and I'd bet there are some great ones out there.

Same with brokers - there are good and bad ones - but the service makes sense (i.e. multiple lenders with one person & independent advice).

Its a young industry and I would agree that, on average, service is probably not up to scratch.

That said, brokers here are not "average". Brokers are a good idea if you can get a good one.

 

[D.T.]

Hi,

In my opinion, alot (and probably most) Brokers are just glorified computer operators. They calculate your capacity then assist in filling out the application and thats it.

Obviously there are a couple from here that I have dealt with that do not fit the description above at all. However, if you're lucky enough to aquire an "inside person" at a bank who can always fix you up with what you need then you're more than likely going to be better off doing so than taking the standard product that the broker channel has access to.

It seems a very easy business to do whatever you like in, if one have no ethics or morals, and I guess some other commission based industries arent much different. The brokerage industry definitely has it's place, but a bit of self research goes along way too.

Coen, I bet that the percentages you have supplied come from a very small sample data set that only relates to one broker or one bank?

Just my 2.2c inc gst

 

[Pete]

What is it, Pareto principal? The 80% and 20% business...

And lies, damned lies & statistics.

Aren't something like 80% of retired people are living on about the pension level?

I hope I'm not too far off the intended subject, but my thinking is perhaps slightly more general.

It is no surprise to me if 80% of investment loans are not done "smart". Gee, 90% wouldn't surprise me at all.

There are many people with investment loans. There are I suspect many of them who are not very knowledgeable on their investing - strategy, the sort of places to buy, negotiating, ownership structures, borrowing strategies, etc., etc.

As often happens, people go to specialists for expert assistance. The mortagage broker is the specialist when it comes to getting loans. There are some intelligent, experienced & highly knowledgeable brokers whose advice makes a profound difference (for the better!) to the success of an investor. However, they are I guess in the minority and "inevitably" the majority of borrowers deal with "lesser lights".

My recent subscription copy of Australian Property Investor included a small booklet on the subject. I couldn't help but think as I read it that it would be a most suitable subject for a specialist book. Any brokers interested in having a go at that? Would be very well received, I think.

My thoughts are if individual investors studied the subject they would have most of the necessary 'smart' knowledge themselves. But, back to the 80%/20%, many people don't learn. That's life!

Regards,

 

[Peter 14.7]

My only comment is I recently saw Rolf L and he advised me not to refinance one loan as it was too good. He also put forward a number of good ideas to investigate to save$$.

My bank, the dreaded CBA, would not know I existed. Recently some one called wife to say we were no longer Premium Customers??? She told then to call me. No call!

So last Wednesday I called CBA and confirmed we still are ( at least the girl said we were) but we no longer have a personal banker but a panel and would I like a call back that day? Yes I would. I am still waiting.

Get rid of the four pillar policy and bring in international competitors. I note ME Super Funds Members Equity Bank is pretty fair and I expect them to cream the big banks once they get momentum.

Peter 147

 

[Cheeks]

My situation was as follows:

Banker: No you can't borrow any more money. We have cross-collateralised your assests which puts you in a great position for the future.

Broker: Yes you can borrow more money. Oh no, they have cross-collateralised your assets. Lets refinance and get you investing again.

Since ignoring the banks and going with my broker I have purchased another 4 properties and increase my net wealth by over 350K in around 12 months.

Take the banks money but get advice from other people.