This is how we show our appreciation and significantly reduce possible future bias in our recommendations
Some banks and other lenders pay more commission than others. This may influence a broker’s decision in terms of the suite of lenders that they will recommend to clients. This is actually fine to do as long as the product we recommend is “not unsuitable”.
According to the Australian National Consumer Credit Protection Act 2009 (NCCP) a loan will be not unsuitable if:
- It meets the consumer’s requirements and objectives, and
- The consumer has the capacity to repay the loan without experiencing substantial hardship.
Australian law will protect you from entering into a contract that you won’t be able to afford, or that will put you in substantial financial hardship. The government has done a great job in protecting you from going into debt that could potentially lead you to lose everything.
However, you are not actually protected if you are entering into a debt agreement that is much more expensive than another as long as it meets your objectives and you can afford it. It usually is your responsibility to do your homework and look for a product in the market that meets your requirements, while at the same time being competitively priced.
We are not trying to discredit our own profession, in fact, there are many Mortgage brokers out there who will absolutely give you a top-notch service and recommendation, and we include ourselves in this bunch of course.
However, the truth is that we are getting more commissions from some lenders, and this figure varies between 20 to 25% difference in commission from lender to lender with similar products. This could potentially create bias in the loan products that some brokers are recommending to clients.
Most lenders in our aggregation group pay up-front commissions from 0.66% to 0.825% for residential loans to broking businesses. A few lender commissions are outside of this range but we want to stick to these figures because they represent what most lenders pay. We should also mention that individual brokers working for broking businesses will only get a portion of this as many companies have to pay other expenses and overheads before they can pay a commission to the individual brokers. In turn, each broker may get commissions in the range of 0.15% to 0.4% depending on their incentive package.
In fact, when banks want more business, the only strategy is not reducing the rates. Instead, they will offer extra commissions to brokers for a limited period of time so they can sell more of their products during this time. Now, I don’t know about you but I think that if this strategy is being used widely, it would mean that it works!
We thought long and hard about this and decided to do something about it in our business. I was inspired by the Tony Robbins Book, ‘MONEY: Master the Game’ when he talks about how in America, most investment brokers do not seek to represent clients but to recommend whoever is paying the best commissions and this off course comes at a cost to the clients in many cases. He talked about how dealing with a Fiduciary was better as they charge the same fee no matter what product they recommended.
We also wanted to come up with a way that would revolutionise the Mortgage Broking Industry. And just to clarify, we are not going to open a fiduciary or start charging clients for our service. We still won’t charge our clients for our home loan services.
So we have committed to the following:
- From now until further notice, for every client that comes directly to Prana Credit Solutions (and not through a referral partner) for help with their new home loan or home loan refinance, PCS will only keep 0.65% minus the aggregator fee of the up-front commission the bank or lender gives us on loans over $150,000.
- Any excess up-front commission will be used to make a Tax deductible donation to a registered charity in our client’s name.
- This means that we will not only be helping those in need, but the client will also benefit with a tax deduction at the end of the year.
- This will dramatically decrease any possible future bias towards the high commission paying products in our business!!
- Per government legislation, we will tell you how much of that commission will actually go to charity and how much goes to Prana Credit Solutions. We will also provide you a receipt from the charity so you can use it in your annual tax return as a deduction.
- We will continue to provide top quality service to our clients with the added satisfaction that we are helping those in need at the same time.
To give you an example:
Let’s say you want to refinance your home loan and including switching fees, your new loan would be $300,000. Let’s also say that by refinancing, you are able to save money on your repayments and one of the most suitable products happens to provide a commission of 0.8%.
Aggregator fee (this varies depending on volume and aggregation plan) = 20%
The total up-front commission that the business receives is:
($300,000 X 0.8%) – (20% aggregator fee) = $1,920
The total up-front commission we want to receive is:
($300,000 X 0.65%) – (20% aggregator fee) = $1,560
Our donation in your name to a registered charity is:
($1,920 – $1,560) = $360
That is a $360 tax deduction for you at the end of the year, plus the satisfaction of having helped those in need, less the hassle of managing your own home loan application. How great is that?!!
Please note that your full financial situation would need to be reviewed prior to acceptance of any offer or product
If you like the idea, please share it with your friends and family and contact us for an initial consultation on 0420465576.
With a grateful ,
Founder and CEO of Prana Credit Solutions
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