Aggregators believe clawbacks as they are now are reasonable and lenders have the right to claim back their losses from brokers.
Vow Financial CEO Tim Brown said if a client pays out before lenders have covered their costs, then the lender “has every right to clawback”, although whether they have the right to clawback the whole amount or just the amount lost is topical.
“It’s not unreasonable for them to clawback but I think they should only be clawing back for the loss of the client. We’ve found that when we’ve talked to lenders in those situations, the majority will reason here and they will rebate and cut it back to a reasonable amount. It’s not as clear cut as people say it is and there’s always room for negotiation.”
Vow regularly gets complaints from brokers who feel their commission has unfairly been taken back, and if the broker has a good case the aggregator will negotiate with the lender.
“They’re not all black and white cases, everyone’s different. That’s why it’s difficult to have a rule which protects everyone,” Brown said.
“There is an opportunity to reason with the lender, no doubt about that, but at the end of the day you’ve also got to see it from their perspective. They’ve had to fork out money for a client but then the client hasn’t stayed with them, and so they’re entitled to get their money back.”
Brown said when clawback happens after 12 months this is unfair and gets “distorted” by the lender, which is when Vow is happy to step in.
“Some clawbacks are very harsh and clawback the whole amount, which I think is wrong. But if the lender is only clawing back their loss, that is fairer… It’s difficult to find a happy ground for everyone, as everyone’s got a reasonable excuse.”
But he admits brokers often get the short end of the stick.
“Unfortunately there always is a loser and it tends to be the broker. I suppose that’s the nature of the business though.”
Boutique aggregator
Outsource Financial CEO Tanya Sale does not believe the clawback system will change anytime soon, because third party distribution arms have to be profitable.
“I think it works and it’s totally transparent. The lenders put the clawback period into the agreement; the aggregators usually provide strong communication within their commission schedule about the clawback schedule. It’s not a hidden agenda; it’s there in black and white."
While Sale said clawback should be restricted to 18 months and to unique and unusual situations out of the control of the broker, she disagrees most circumstances are outside the broker’s control.
“Know your client. There’s really no excuse. The writer would know if the person has bought an investment property to hold on to for two years then flog it off to make a capital gain.”
Unlike Vow, Outsource Financial rarely gets complaints from its brokers about clawbacks – Sale said the last time her company had to step in to help was two and half years ago.
“We haven’t had an issue with clawbacks so we haven’t really had to intervene…I think it is working, I really do. If I have to say anything strongly, it is that it is transparent – everyone knows what page we’re playing on.”
But it is the lender and the aggregator jointly who are holding brokers to ransom as the remuneration and clawback agreement is between them, said broker Maria Rigoni.
“While it is the lender who dictates the amount they pay in upfront and trail commissions across the whole industry, it is the aggregator who passes these terms on to the broker.”
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