Q&A with David Devenish, CEO, Westminster National Finance Brokers.
Recommendations have now been made public following the banking Royal Commission. These included recommendations for a fundamental change to how finance brokers are remunerated. Many are wondering why broking even made it into the recommendations, when only 1% of complaints about the finance industry are related to brokers! Watch our video Q&A to find out more.
Read on for a summary of the key recommendation, and what it means for customers.
Q1. IS there a key recommendation of the banking Royal Commission that could change finance broking in Australia?
Currently, the lender pays a commission to the broker which acknowledges the upfront work the broker does to collect information and present it in a way that makes it easy for the bank to process.
The royal commission recommendation is to change broker remuneration and abolish commissions on home loans because of the inference that our remuneration structures were likely to encourage brokers to advise clients to borrow as much as they possibly could. This doesn’t ring true in reality, successful broking relies on building and maintaining good relationships with customers and this won’t happen if brokers are solely focused on encouraging clients to borrow money they don’t need. Also, at the end of the day, it’s the banks who dictate how much a customer borrows, not the broker.
Most importantly though, the royal commission has not recommended changes to the services that brokers provide customers, so the good news for customers is that we are still here to keep doing what we have always done. Our job has always been and will continue to be to act in our clients best interests to help them deal with increasing complexities when seeking to borrow money. To save our clients, time, money and stress and to give them genuine choice in which bank best suits their needs.
Q2. Were you surprised by the recommendations for brokers?
We were certainly shocked with the royal commission's recommendation to change our remuneration as the system is certainly not broken, and after all the royal commission was primarily an investigation into banking misconduct. I don’t recall seeing one single Finance Broker questioned during the RC, there were certainly plenty of bankers! It’s also interesting to note that less than 1% of complaints about the finance industry are related to brokers.
Westminster National is primarily a commercial broking business and the recommendations will not apply to how things operate or how we help businesses access credit on the commercial and equipment finance side. For mortgages, the recommendations may change the way we are paid but will not change the service we provide to our customers. We will still be here to help them navigate the process and help them access the most appropriate finance for their circumstances. We do, however, have concerns about the recommendations diminishing competition in the market and the impact that will have on choice of lenders going forward.
At the end of the day, though, the royal commission is simply recommending changes to how brokers are paid. So, if laws are passed to change the way in which we are paid then we will adapt and change, all with our clients best interests top of mind.
Q3. How will the Royal Commission recommendations impact customers and the market in general?
First and foremost, our business exists because we provide great outcomes for our customers. This is always our first priority. If we didn’t provide good outcomes for our clients we wouldn’t be in business. This will not change going forward.
As mentioned, the changes will be in how we are paid for the service we provide. Instead of the broker receiving a commission from the bank or finance institution the customer chooses to go with, the industry will move to a fee for service model where the customer pays the broker direct.
My big concern with any change to the current broker model is that it may lessen competition which in turn will cost consumers more. It’s likely some people will be resistant to a change to fee for service and this will see more people going directly to the banks.
When you use a broker, they do the leg work and look at all the options in the market that will suit their client’s individual needs. Bankers don’t compare lenders day in and day out…..Brokers do! They’re often able to source a deal that a client is unlikely to find themselves. Most people just don’t have the time to look at all the options themselves, and may not even know how to compare the different deals. So, big banks with large branch networks will become an easy option.
The problem for customers is that banks, as you will imagine, are not going to say ‘we’ve’ got a good product, but there are 10 other great options you might want to take a look at. They’re only going to offer their own products. So customers may not get the best option in the market for their specific needs. And if other options (such as smaller lenders) are not getting exposure, these could fall away entirely leaving people only with the larger banks. In the absence of real competition, banks won’t need to be so competitive on cost or conditions.
For over 20 years brokers have created competitive tension in the market by offering clients access to a variety of lenders and genuinely helped improve the prosperity of this country by facilitating the access to capital for people to invest in homes and businesses. Without healthy competition within credit markets, our economy will not grow properly.
Q4. If competition decreases and banks become the only option - is a 'one size fits all' approach so bad? Do we need finance brokers going forward?
Our service comprises of many things other than just finding the cheapest loan; borrowing money is not just about the price!! Just like when you buy a car, price is part of the total consideration of any consumer. If it was only about price then we would all be driving a Mitsubishi Mirage at $12,500 a pop!
Just as we all consider such things as safety ratings, fuel economy, warranties, space, size etc when buying a car, the same can be said for loans, ie, interest rate, fees, term, repayment type, security, loan size, lender covenants to name a few. Our expertise in lending is why customers seek our advice.
We save clients time, money and stress AND WE GIVE THEM CHOICE!
We also provide an individual service that banks are just not geared for. For example, if you can’t meet in office hours will your bank schedule after-hours meetings? Will your bank hand deliver loan docs and help to explain them if you’re not sure?
Here are a few of the facts that demonstrate great customer outcomes from the broking industry:
- Over the past 20 years, brokers have been instrumental in driving down bank lending margins
- 59.1% of all home loans written in Australia are originated by Brokers
- Over 90% of our business comes from repeat and referral business.
Q5. What’s next for the finance broking industry?
In conclusion, while we were surprised by the recommendation of the royal commission, we see this as a great opportunity for finance brokers - in the finance industry trust is critical. In the current climate, our customers turn to us because they trust us. For the past 20 years, finance brokers have been the constant while there has been massive change within the banking industry.
I lost count many years ago how many clients have told me their major frustration with their bank is not having anyone who understands their business and who remains in their job longer than 12 months!
Our broker team has an average of 20 years of finance industry experience. 20 years! I think you would be hard pressed to find many bank managers still in the system with that kind of expertise.
So our message to clients is simple and hasn’t changed. We can help you through the complex process of obtaining a loan for yourself or your business. We will save you time, stress, money and share our lending expertise to give you choice across a range of lenders.