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A high profile financial analyst has issued a public statement claiming mortgage brokers continue to work for commissions rather than client benefit, despite disclosure requirements.
In his Market Report published late last week, Wealth Within chief analyst, Dale Gillham, says the regulation spotlight needs to be pointed at the mortgage brokering industry, claiming brokers are largely left to their own devices and that, as a result, clients are often ‘getting fleeced’.
“When it comes to financing [a new home], mortgage brokers are required to give you a choice as to a loan that best suit your needs. However, many will generally recommend the loan that makes them the most commission just like financial planners have been able to do. I am all for responsible regulation if it is needed and these are only two industries of dozens I could write about that require a good shake up.”
When asked if he has any concrete evidence to back up his claims, Gillham tells Australian Broker he doesn't, but that he’s dealt with brokers for a ‘gazillion’ years.
“When I worked for Westpac, you always picked three products, the one in the middle is the one you want them to buy and so you push the middle one.”
Brokers always have a ‘preferred bank’, he says, whether they realise it or not.
#pb# “We’re always biased towards people we like. Subliminally, whether they’re doing it out of intention or not, they’re going to do the one that benefits them the most. If the broker likes Westpac and maybe ANZ pays them 10 basis points less, they’re going to recommend Westpac. What I find is most brokers will recommend the same product to all people. You’ll find it in the financial planning industry as well.”
However, Gillham is quick to add that he doesn’t dislike brokers as a whole. The point he’s trying to make, he says, is that the federal government needs to regulate the various financial services sectors equally.
“The purpose of my comment is that the property industry is largely unregulated in terms of building and financing properties. The biggest investment anyone makes is on their house. If it’s your biggest investment, why isn’t it regulated as much?
Anyone getting paid commissions is going to be biased, he says, and while disclosure is a good start, brokers also need to be better educated.
“It’s amazing how often I hear of brokers offering financial advice. It’s a broad brush, but this industry needs to be regulated. I know mortgage brokers are subject to compliance and I know they’re regulated. But if you’re pulling out one section of a community (financial planners), then insurance brokers, mortgage brokers, pharmaceutical reps, why not look at all of them? Don’t just target the one because we’ve had a global financial crisis.”
“Maybe you shouldn’t be able to give advice on construction loans unless you’re qualified and have done a course,” he suggests. Or perhaps, “when you start out as a broker all you can do is advise on residential mortgages up to $400,000?”
“The government is really good at being reactive to some issue, but when the sh*t hits the fan they react to something else, and while they’re at it, mum and dad get shafted. Too much regulation is not good, but not enough isn’t good either.”
