LMG chairman hits out at AFR over articles critiquing broker industry
In this week’s blog post, we will be discussing the response of LMG’s Executive chairman Sam White to a couple of the Australian Financial Review’s recent articles.
These articles called into question the motivations and transparency of mortgage brokers in the industry, raising questions about wages to work value, trailing commissions, and financial integrity.
Many in the industry were not impressed with the articles, and LMG Executive Chairman Sam White was one of them.
On Monday he released a press release responding to the articles.
He alleged that the articles – admittedly possessing a certain amount of true information – held “errors and assertations that were incorrect”, and that he wanted “to set the record straight”.
“The articles acknowledged that brokers have saved clients money by creating asset competition,” Mr White wrote.
“That part is right.
“Australian borrowers pay less interest because of brokers.
“Net interest margins have come down, the mortgage loyalty tax has reduced, and customers have an advocate to ensure they get a fair deal.”
According to Mr White, the article contained false statements such as that “brokers prioritise commissions” instead of the “best interests” of their client, that the support given by brokers has not altered post Hayne Royal Commission, that brokers make a huge amount of money, and that their “commissions are opaque and not transparent”.
Mr White asserts that brokers have more than a seventy percent share of the new lending market.
“Largely driven by word of mouth,” he said.
“But this couldn’t and wouldn’t happen if consumers did not find value in the services of brokers.”
The chairman also said that in the 2023 financial year, just 332 out of 53,648 financial services industry complaints had been recorded against mortgage brokers.
He was also keen to assert that the commissions brokers make are not their income but in fact business revenue.
“Brokers operate a business, incurring expenses such as aggregation fees, technology charges, marketing costs, business insurance, salaries, and rent,” said Mr White.
“Therefore, the revenue figure does not equate to a broker’s personal salary.”
Mr White also refuted the allegation that brokers are trying to get clients to put their house on the market as well as “pay agents fees, stamp duty and relocation costs” in order to get “a new upfront fee”.
He called the assertion “incredulous”, and condemned any brokers who carried it out.
“If this practice exists, it must be stamped out and I will hold those brokers to account,” said Mr White.
“I would be very interested, as I am sure ASIC and AFCA would be, in any evidence or information proving that brokers have convinced clients to sell their homes just to receive a new upfront fee.”
He also thought it was a “questionable” idea to lower broker commissions and expect banks to cut interest rates.
“This assumes that banks would pass on savings in broker commissions to the consumer rather than improving their profitability,” said the chairman.
“If so, that’s a big assumption.
“What evidence supports this assumption?
“Historically, banks have not consistently passed on RBA cuts to consumers.”
Mr White believes that this idea “deserves further scrutiny”.
Meanwhile, the chairman also believes that the Best Interests Duty, which was implemented post Royal Commission, has added “complexity and costs”.
“Legislation has added significant work to ensure Best Interests Duty is met and brokers now need to do many of the checks that banks also do before submitting a loan, such as conducting credit checks, income checks, and expense analysis,” he said.
“Many brokers handle this extra work and research by employing staff, increasing their business expenses.”
Regarding the clarity surrounding broker’s commissions, Mr White stated that mortgage brokers legally have to declare the commission from the money lender.
“They also disclose the top six lenders they use and the proportion of loans submitted to each,” he said.
“The implication that brokers ignore the Best Interest Duty is unfounded.
“Detailed documentation accompanies every client recommendation, giving the client transparency and power to make the best decision for their requirements.”
Ultimately, Mr White believes that mortgage brokers allow for competition, gaining “better pricing, services and outcomes for consumers”.
“The declining net interest margin, growth in mortgage broker market share, high NPS and low customer complaint rates all point to an industry focused on the consumer,” he said.
“We all understand why banks would want to reduce broker commissions and increase their net interest margins and their profits.
“Weakening brokers will only reduce competition, leading to higher interest rates and a return to the imbalance of power between a lender and borrowers of Australia.”
More to come.
