From clawbacks to trail commissions, the systems that allow brokers to be paid need an overhaul, says Bianca Patterson, director and founder of Perth brokerage Calculated Lending.
Patterson (pictured above) said that while on average she felt the pay structure was reasonable for what brokers did, “there is certainly room for improvement in a number of areas”.
“We brokers really do work for it,” said Patterson. “It takes on average between 12 hours to 20 hours for the office to process a loan from initial meeting to the 30 days post-settlement check-ups, and then up to 15 hours for check-ins throughout the year.”
Patterson acknowledged that the time per client could vary due to factors such as client circumstances, cooperation in providing required documents, choice of lender, and the expertise of the professionals managing the file throughout the settlement process.
But with the MFAA’s latest Industry Intelligence Service Report (15th edition) showing more than 46% of Australian brokers wrote $5 million in home loans or less for the period between April 1 and Sept. 30 last year, Patterson said many in the industry could be impacted by some of the industry’s structures.
Rewarding customer outcome
Clawbacks are a controversial subject in the broking community, and with the latest spate of cashback offers on the market many brokers are taking a hit to their commissions.
Patterson said that while she agreed that clawbacks were necessary in the industry, the current method of calculation couldn’t continue.
Clawback should be calculated pro rata by month, not year one and two, she said. “This is especially true coming off an environment where the lenders have been buying each other’s customers bases with cashback offers, knowing they are clawing back some of that cost from us.”
Patterson also said that the way trail commissions were being domiciled to brokers “needs an overhaul”.
“If a customer signs off that they are working with a new broker, and the bank is satisfied that the broker is working to retain that customer with them, then this should be rewarded by the customer being moved under the new Brokers Code so they can complete ongoing maintenance for the customer with ease, and the trail should be moved accordingly,” she said.
Patterson also said she wondered how many “orphaned clients” were out there and how that was affecting the industry.
“Orphaned clients are those whose broker has retired, is not checking in with them and generally no longer actively involved in managing their loan. How many are still being paid trail while another broker is working hard for that client?” she said.
Patterson said that the industry needed to start looking at ways to reward “great customer outcomes” if it wanted to be seen as one of the preferred professional services to join.
“An easy fix to this is to pay a broker for the work they do with the trail from that loan,” she said.
“Changing this up is also a way we can ensure the best outcomes for clients as brokers exit the industry, as the current method of paying the original broker the trail until the loan is paid out does not promote best practice.”
How can brokers manage trail commissions?
While Patterson advocates for change, the current environment makes a large portion of a broker’s pay uncertain, and she urges others to look for ways to manage their books.
“I always budget that any upfront commission we receive could be clawed back over the next two years, so that money is a variable that I don’t commit to fixed costs in the business,” she said.
“Trailing income pays for our fixed costs including the office, wages and all operating costs. Due to this it’s an asset that needs to be actively watched and maintained.”
Patterson said that brokers needed to keep in mind that each month a trail book would naturally decrease due to the amortisation of debt.
“For me it’s about making sure we bring in enough new clients to cover this, along with new clients to replace any that may have discharged their loans, plus a little more for growth,” she said.
