Mortgage broker fury at Westpac commission cut
Tuesday, April 15, 2008/
A unilateral decision by Westpac Bank to slash the commissions it pays to mortgage brokers has met with an angry response from the industry.
Westpac has told brokers that it will cut 0.2% from its 0.7% up-front commission and 0.1% from its 0.25% trailing commission.
It is understood the commission cuts will apply to mortgage brokers across the industry from mid-May.
Paul Lahiff, chief executive of broking franchise Mortgage Choice, says his 430 franchisees are unhappy with the abrupt manner in which Westpac informed them of the cut.
“They just said this is what we’re going to do and that was it; no discussion, nor preparedness to look at other options that might achieve the same outcomes, so there is a fair bit of anger about that,” he says.
Lahiff says the consequence of the Westpac move is a likely shift in business to other finance providers, but he denies this could result in brokers putting their anger about the cut ahead of customer interests.
“We’ll always look after the customer first, but faced with the situation where loans are roughly competitive, brokers will look and make their own judgement,” Lahiff says. “Westpac will expect a significant loss in volumes. That will be a natural outcome of the reduction in commissions and how they’ve gone about it.”
And when business turns up again, Westpac may find itself struggling to convince brokers to take on new products, according to Kevin Matthews, executive director national operations with listed mortgage broker Australian Finance Group.
“They’ve come out of the blue and just gone whack, and no doubt they’ll be judged harshly for being the first to go,” Matthews says. “Our brokers may not be that keen to forgive them for having this slash and burn approach rather than a consultative approach.”
The question is now whether the other banks will follow Westpac’s lead, with one newspaper reporting today that several other institutions are in the process of reviewing commissions.
Lahiff says other banks have told him they want to “explore ways to improve profitability”, but says there are other ways to do this than cutting commissions, such as improved cross selling or longer loan periods.
If there are across-the-board cuts to commissions, another option for mortgage brokers could be to move to a fee-for-service model.
Colin Sacs, chief executive of Melbourne-based mortgage broker Mortgage Fair, says tighter commissions and falling home loan volumes could change the way many in the industry operate.
“There is demand for good quality brokers, but how they get remunerated will obviously change –where that heads will depend on how events unfold, but as banks pass on tighter margins to consumers and the people selling the product, mortgage broking will evolve, and you may find good mortgage brokers will charge for their time,” Sacs says.
The art of business drinking: How to make deals, networks and friends Ian Whitworth Scene Change co-founder
Bridging the gap: Why regular customer surveys are key to good business Sonia Majkic 3 Phase Marketing co-founder
Six reasons every workplace should have a resident dog Michael Tiyce Tiyce & Lawyers principal
How we created an engaging online course with a 91% completion rate Emma Green Your CEO Mentor co-founder
Five things to consider before you launch a family business Monique Bolland Nuzest co-founder
Why Australian businesses are the new owned media moguls Jonathan Hopkins Marketing