Every now and then you find out why things happened sometime after they’ve already happened. At times these are minor things like why my son, who was near the top of his class for science, failed the end of year exam. I found out a week later and while a little surprised I was completely understanding – he’s 14. I guess he gets a tutor next year and we keep our fingers crossed that the hormones raging through his body go easy on him.
I read with interest last week how one of our major banks had fired 20 people for using fraudulent or non-standard financial information to process home loans. To be fair to the bank these incidents occurred in 2015 and they reported them to ASIC as soon as they were aware.The one item that stood out in the story for me was that the sources of the leads that these bank employees had processed these loans from were all third-party intermediaries. Interestingly none of them were brokers.
Now the bank is reviewing each and every loan processed by these people and asking clients to assist with their investigations. I’d be a little nervous if I was a client.
None of these intermediaries had been subjected to the type of compliance and accreditation processes that we, as brokers, are subjected to.
However, in a lengthy investigation of broker remuneration by ASIC which was handed down earlier this year, they concluded that whilst brokers actually added value to their clients, they (ASIC) were concerned about other intermediary channels used by banks who weren’t subjected to the same accreditation and/or compliance processes. Nevertheless, and this is really important, they were paid as much as (or more than) brokers in some cases.
To reveal why I’m talking about (or more specifically writing about) this I need to rewind by around six months.
A financial planner friend of ours, who has been a solid supporter of ours from the very beginning arranged for us to meet a real estate advisory firm.
We spoke over lunch and hit it off. This adviser was a little different from all the other real estate advisers who had crossed our paths. We thought that was a good thing.
We should’ve heard the alarm bells ringing when we realised that all of their leads were generated by a facebook campaign. We weren’t.
Within a week of our meeting we had been referred over twenty potential loans. We were very excited. However, we should’ve been suspicious that the all the leads were from a few postcodes in outer south-western Sydney and the properties for sale were all in Queensland. We weren’t.
We further should’ve had our hackles raised when we ran the financials of the leads through our home loan system and only one of them qualified no matter how much we tried. We didn’t.
The following few days saw even further leads of a similar quantum. We were concerned that being a small firm like ours we were being overwhelmed by the number of time wasting leads so we asked to meet again so we could lay down some financial ground rules around whether or not clients qualified. They thought it was a good idea but the meeting never took place.
Frustrated by the inaction, we made an appointment with the principal of the company and flew to the Gold Coast to meet with him. We should’ve been alarmed when he cancelled a few hours prior to the meeting and suggested we meet when he was next in Sydney. We weren’t. After all he was a busy man. The Sydney meeting never took place.
Two months later…as business owners we were a little surprised that we hadn’t seen a single lead for six weeks so we caught up with our friend, the planner, who had initially introduced us to these guys.
When he was told by the real estate firm that we were too conservative we thought it was the best news we’d had all year. It validated to us that our business model was working. No unfortunate clients had slipped through the cracks. We hadn’t sold an unsuitable product to a client who could ill afford it.
Now, we’re not accusing these people of fraud. They’re too clever for that.
You see, these real estate advisers had been shopping around for mortgage brokers who are “not conservative”. You know, the ones you read about in the headlines. The one’s who have landed in jail. When they found out that we weren’t willing to risk our accreditation and jail time, they moved on. In short, we weren’t willing to commit fraud.
They, the real estate advisers, need no qualifications to establish their businesses. No real estate licence, no compliance requirements, nothing. We haven’t yet met one who is not acting for a particular property developer or three. So, they risk nothing.
We’ve seen a few of these now and not all are in the practice of broker shopping until they land one that will do their bidding. But the rest of the descriptors apply. I’m just glad that they seem to have moved on from us.
Maybe I’m pragmatic and don’t like seeing taxpayers’ money being wasted. But when you spend millions on investigating an industry (as ASIC did – see above) surely you should follow up on the findings.
We, as brokers, really don’t mind the competition from real estate agents, accountants and other channels that banks want to use. All we ask is – if you’re going to pay them as much as or more than us or you pay them at all – you hold them to the same accreditation and compliance processes that you insist we undertake.
Otherwise all the noise you’re making about being tough on broker compliance and accreditation is just that if you allow other channels to do what would be non-compliant in the broker channel.
For the benefit of doubt we feel that it’s too easy to become a mortgage broker. There needs to be more weight placed on industry experience, financial ability and fraud detection. Industry bodies go some way in providing education in these areas after you’ve qualified.
Both Nick and I had a combined banking experience of 43 years when we started. We’re competing against people who have had zero prior experience and have come from non-financial backgrounds (hairdressers, mechanics, etc.).
Whilst we don’t mind the advantage being skewed in our favour, it’s a little unfair on clients. Isn’t it?
After all our competitor’s websites look every bit as slick as ours (if not more). They’re marketing brochures will be as good. Even the systems they use will be the same. So how can clients differentiate between us?
What happens when the broker-shopping real estate advisers approach a clean skin broker with no experience and they jump at the idea of 20 leads a week? To make sure they keep the leads coming they “bend” a rule or two. Soon they’re doctoring payslips or income statements.
Eventually you and I read about them in the papers while they’re serving a prison sentence.