The chief executive of a consumer cash-back company, which is hyping consumers to take back $3 billion in ‘hidden fees’ paid to mortgage brokers and financial advisers each year, is adamant his company is not out to deliberately steal clients from brokers.
Cash-back firm YourShare.com.au commissioned consultancy firm Rice Warner to write a report about ongoing fees in financial services, released yesterday.
Australians pay ongoing fees of $3.367 billion every year to financial advisers and brokers on products such as mortgages, life insurance and retail superannuation, the report claimed.
The study claimed that for the period covered, the average annual ongoing fee or commission on mortgages was $688, based on an average size loan of $344,221.
Rice Warner assumed the average upfront broker commission is 0.60% of the initial loan value, and the average trail commission is 0.20% of the outstanding loan value. It concluded only $281 billion of the $1.2 trillion mortgage market is currently subject to trail commissions.
YourShare said it has helped Australians for the past 10 years to claim back their share of these “hidden fees”, and claimed more than 16,000 Australians have now received over $8 million in cash back.
Ron Hodge, CEO of YourShare, said through a press release: “These ongoing fees are hidden to many consumers because they were either not disclosed or they were buried deep in paperwork when you initially bought these products. At YourShare, we believe in helping our members to take back their share of these fees.”
“A lot of people may think this is too good to be true, and that is exactly what some advisers and brokers want you to believe because they probably pinch themselves every day for getting paid to do nothing. They know it’s true but it’s too good for them to tell you,” he said.
Understandably, this has riled mortgage professional association’ heads.
“The thing that hit me about this is that under the NCCP this doesn’t happen – there are no hidden fees because brokers must disclose to the client about commissions. The broker is paid a commission to do a job – there’s no financial disadvantage to the consumer,” Finance Brokers Association of Australia CEO Peter White said.
“It’s just scaremongering by the company. It’s not appropriate at all. I’m not saying the data is wrong, but from our side of the fence the context is garbage.”
White is concerned that YourShare is churning brokers’ books and refinancing the loans.
“The way I think they must be doing it is by doing the dirty trick and refinancing the facility. They must be churning people’s books, which is despicable.”
Mortgage and Finance Association of Australia CEO Phil Naylor also believed the company operates through refinancing brokers’ loans.
“In this instance YourShare are operating as a broker and refinancing other broker’s loans just as happens from time to time in the market, except that they rebate the trail.”
He said it is inaccurate for YourShare to say it takes back commissions paid to mortgage brokers by clients – because borrowers never pay the commissions in the first place.
“The commission is paid to brokers from lenders out of their operating expenses. So it is not retrievable from brokers. What they do is refinance the loan and then make a rebate on the commissions they would earn from that refinanced loan to the borrower. That is not retrieving the original commission from the broker.”
YourShare CEO Ron Hodge confirmed to
Australian Broker that they pass on savings to the consumer after refinancing the loan.
In the first instance, YourShare get clients to sign a nomination form which appoints it as the consumer’s chosen broker. The company then approaches the financial institution and asks to be appointed as broker.
“Most of the time this happens easily,” Hodge said. “But mortgages are one of the more difficult ones, and sometimes the lender point blank refuses.”
The company then goes back to the client and asks to refinance the loan under YourShare’s name.
“Generally speaking we can get a better rate for the client,” he said.
But despite enticing many borrowers away from the broker who wrote the original loan, Hodge said he does not see the practice as churning or unfairly poaching clients from brokers.
“Clients who see value in those fees with that broker will not go through our service. But what we have found is that hundreds of thousands of people have not spoken to their broker or financial adviser for years.
“Some people don’t even remember the name of the broker who wrote their loan back in 1983 – and are surprised to find that broker is still receiving commission for it.”
Hodge said YourShare is “definitely not” trying to steal clients from brokers who provide good service and provide value for money to their client.
“But I’m pretty confident in saying that you’re not servicing your clients if you don’t contact them for years, but are still getting a fee. That is providing a bad service and is not value for money.”
Hodge said he would not swap his own mortgage broker in return for money back with YourShare, because his broker regularly keeps in touch and rewrites his loan for a better rate without prompting.
“For brokers to provide good service it’s as simple as sending a birthday card, or an email every month with relevant information. I find value in my mortgage broker, and so would not use YourShare,” he said.
“It’s stupid that a middle man can save a consumer money – because that’s what we are, middle men. But so many people don’t realise there’s a gravy train of money that floats around in ongoing fees – and we can save them considerable amounts of money.”
MFAA’s Naylor reiterated that brokers need to have a valuable and ongoing relationship with their clients in order to stop them using a ‘cash back’ service.
“As always, just as with claw back, brokers need to ensure they hold a good relationship with their clients so they don’t refinance with someone else.”
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