Summary
Kerri Buurman, the director of Buurman Finance Solutions and chair of the Mortgage & Finance Association of Australia (MFAA) speaks with Founder and Director of Strategic Mortgages Perth, Trent Fleskens on the state of the industry. Some of the topics covered include:
- Industry outcomes following the royal commission’s recommendation to ban broker commissions in 2022
- Industry change over the past two decades
- The role and influence of the MFAA
- Potential for change in the brokerage industry
- What clawbacks are, how they affect brokers, and how they could evolve
Podcast Episode
Episode Transcript
This week we are chatting with Kerri Buurman, the director of Buurman Finance Solutions and the chair of the Mortgage & Finance Association of Australia (MFAA). I thought it would be a good opportunity to have a conversation, diving deeper into the world of mortgage broking, the occupation of it, how the Haines Royal Commission has affected the industry of mortgage broking, banking and its clients obviously, over the last few years, where things are going with it, whether there’s any connection in the future with how the financial planning industry has been treated as well, and just general views on mortgage broking as a service, giving the chair to Kerri Buurman.
Background on Kerri Buurman
I started as probably a lot of the listeners might have, in that I was working for a bank. I was there for ten years. I guess it just got to a point where mortgage broking had obviously started whilst I was in those early days of banking and a lot of my colleagues had left and were niggling me saying, come on, Kerri, you should come and do this too. And it was such an eye-opener. I remember when I first left the bank and went into mortgage broking, and suddenly this light bulb of, oh my God, you can do this, or you can do that. Because when you’re working for one institution, you do become very institutionalised and you tend to think that they are the best, whatever they will do can be done, and whatever they won’t do can’t be done anyway, right?
And then suddenly you’re faced with this massive panel of lenders that can do things that you never dreamed were possible. The enlightenment that came with being able to actually help people, genuinely help people, and give them real solutions to a whole range of problems, and educating people along the way as well, I think is something that I’m really passionate about.
The brokerage industry following the Royal Commission
Now mortgage brokers are writing just over 70% of all mortgages in the country so clearly consumers are being educated in terms of the value proposition of a broker, and less and less are going directly to the bank. It’s really significantly increased, funnily enough, since the royal commission. I remember at the time thinking, oh my God, we’re thrown under the bus, what’s this going to mean for us? And then really, within a pretty short period of time, I thought, you know what? He’s done us a favor.
MFAA was real involved in that “Don’t Kill the Competition” campaign that they started to really highlight to consumers that, hang on a second, don’t throw us under the bus here. We’re the ones that are keeping the banks honest. We’re the ones that are keeping competition alive in the industry and making sure that there’s not massive profit gouging by the bank. And that we’re keeping them honest in terms of the interest rates that they’re offering to customers.
We’re seeing it now (the importance of brokers) with those out of cycle interest rate rises, that the banks, largely the major banks are doing, which affects primarily their back book. They have these fantastic offers for the new clients that want to come in the front door and then suddenly the back book ends up being neglected, and the broker has a huge part to play in that. If you’re really doing things well in the industry and you’re running your business effectively, you’re really looking after your back book and and protecting your existing clients.
Will we see Parliament legislate that banks must provide the same rate to all of their clients for the same product?
It would be great. I don’t know that I’m going to see that happen in my time in the industry. Great if it did, but I think we’re a pretty long way off that.
How has the industry changed in the last 18 years? Was there any real compliance?
(The industry) certainly evolved massively, particularly in the last few years, in terms of the compliance that’s expected of us today than, what it was 17, 18 years ago when I started.
There was some compliance to a level back then in WA. We were the only state that was licensed so you had to have a finance broking license, which was DOCEP, Department of Employment, Consumer Employment. It was certainly there, particularly in WA, but more broadly around the country there was a lot less legislation or scrutiny in place. I think WA has always done it pretty well in comparison to some of the other states.
We still faxed applications, you know. You may even have some listeners, I don’t know, some of the guys who’ve been around in the industry for a long time who still today really struggle with the way technology has changed and still wish that they could go back to that paper form filling in, send it off on a fax to the assessor or bank. Everything was handwritten. So it’s changed hugely, but then what hasn’t changed in the last 17 or 18 years? Particularly anything that is in the technology space, there’s been so much change and it will continue to change and continue to evolve.
New players that have joined the industry
Now you’ve got not just institutions that are banks or credit unions, you’ve got your FinTechs and all of these other new players.
I think we all probably get to the point where we have a certain panel, that we tend to stick to our favorites. I think that’s pretty normal. Obviously, the software that we have can give us a comparison against all of them but as a broker, you’re always going to gravitate to a certain number of lenders that you know you have a good relationship with the bank, you have a good relationship with the BDMs or the RMs, the credit assessors.
You want to provide your client with a really smooth, efficient service. You’re probably going to stick to the ones that you know will provide that to you, rather than go and try something completely new and then potentially have the wheels fall off.
There has been over the years, a number of times where I’ve been introduced to a new lender and thought, okay, I’ll give them a go. Unfortunately, sometimes it’s been a pretty disappointing experience, so you don’t tend to go back for a second bite of the cherry.
If you’re an institution that doesn’t have significant cost, we have to understand that if people want to go to a major bank, they are going to pay a bit of a premium for that because the infrastructure, the branch networks, that sort of thing is, is an extra cost to them compared to someone who doesn’t have that kind of service proposition. Their costs are lower, so you would expect their rights to be marginally lower, but it certainly does help to keep competition. I think that’s why, although the Royal Commission was a bit scary at first, I actually think in a way it’s been quite positive for our industry.
What is your Role as Chair of the MFAA? How does the MFAA onboard and influence?
Any member that’s a member of the MFAA, if they meet certain criteria that the MFAA asks of them, they can put their hand up to be elected as a board member. So obviously those elections aren’t held every year, they’re held whenever a director retires and we have a set-. When you get voted on to the MFAA, you have a term of three years and then you can sit for a second term if you wish. So it’s been a really interesting experience. I’ve thoroughly enjoyed it. I must say, as a member of the MFAA, I was probably a bit oblivious I think. You kind of just pay your membership fees and don’t think too much about “What are they actually doing for us?”. You see it (the membership fee) as a necessary evil, so to speak, I guess. But the one thing I can absolutely say, having been involved at the board level, is that the work that the team at the MFAA, does for the industry is really extraordinary.
They are such a dedicated, passionate, small team of experts. So we’ve got policy and legal, Naveen is constantly working on what submissions to put in to government, etc. in terms of advocating for the industry to get some of the outcomes that we’d like to have. We’ve got our education and marketing team who are always trying to make sure that they’re putting the broker front of mind, giving us the tools to be able to use to get front of mind with our clients, giving us the education that we want in terms of keeping us up to date with regulatory change.
And look at what we’ve had, we’ve had bid recently, so it’s keeping on top of all of that stuff. The team do a really awesome job and being on the board has just been really enlightening. There’s eight of us on the board, five of us are elected directors and three of us are appointed directors. Those three directors are appointed for a specific expertise that they bring to the board and collectively, I guess our role is to just help form a strategy for the MFAA and to guide the way our industry is headed, I guess.
What is the current focus of the MFAA?
Continuing the advocacy piece. I don’t think even when there’s no sort of real critical things going on, that you can take your foot off the pedal with that sort of thing and the MFA has always been very active in that space. And also education, I think looking forward as an industry, I think we just need to remember that continual improvement is something that we should all be aiming for.
It’s very easy to kind of sit in the past and just go, well, it’s a cert IV or it’s a diploma, but what are we doing to continually improve ourselves? Keep that professional standard and to eventually be seen as a profession, the same as accountants and lawyers and financial planners are?
How many members does the MFAA have?
Oh, if I remember this correctly, it’s well over 14,773ish, I think is the last number I recall.
Do you see the barrier of entry for becoming a broker go up and that number fall?
We believe that all of our members have the best intent, and I’m sure that is the case. We at the MFAA, do have the higher minimum standard in terms of the diploma compared to FBAA who have the Cert IV. And, I’m sure there are a lot of FBAA members who actually do also have a diploma. I do think that in time it’s just, again, about continual improvement and looking forward as to what is next.
Is the diploma enough? What would some other form of education or continuing professional development look like? But, I think we just all need to be on that path of continuing to learn, continual improvement, exactly what that looks like. That’s for the team to work on.
Do you think there’s room for improvement in the way that brokers are remunerated?
Clearly, there’s been a positive spin from the Royal Hayne’s commission or we wouldn’t end up with writing 70% of loans and mortgages across the country.
So I think, although at the time as I said earlier, there was a bit of fear around that time and the MFAA came out very strongly with the “Don’t Kill the Competition” campaign, and that really shone a light on the industry in a really positive way and consumers have realized that using a broker does provide them choice. And why would you go direct to a bank?
I mean, I would ask anybody that question, and I used to work at a bank. Why would you, as a consumer, go direct to a bank to get one outcome? When you can go to a broker and have a whole gamut of solutions presented to you that are most likely going to be better than the one you would have got if you’d just walked directly into your own bank. And sometimes people can walk directly into their own bank and get told no, and actually not realize that somebody else might actually say yes to exactly the same thing. In terms of remuneration, the reality is, the commission structure we have has been around for a long time, although obviously it’s had some changes over the years.
Initially it was primarily just upfront commission, and then when trial was introduced, it was kind of put there as an extension of the upfront. You got part of it now and you got part of it later, so to speak.
‘Churn’ in the industry
We’ve all heard the term ‘churn’, in the industry. And obviously there were some brokers back then who probably did do that a little too regularly, and the light was shone on the industry for that reason, I’d certainly think there’s a hell of a lot less of that going on today, and part of that probably is because of the way we’re remunerated.
I also do think that generally brokers try really hard to maintain the client at the lender that they are already with, even past the two year clawback period, because the reality is, if that’s what’s in the client’s best interest to stay at the lender their with, then you can navigate and negotiate a really good deal for them there, and it’s not worth them moving elsewhere. Why would you put yourself and the customer through that entire process when there’s actually no real benefit at the end of it?
Some of the conversations that were had in the industry, was that the banks years ago were looking at the brokers and saying that our behavior was creating churn, and now we can shine the light, or turn the mirror back on them, and say well, if you’re going to be offering cashbacks of $2,000, $3,000, $4,000, what do you think that’s creating? Because you’re always going to have those consumers who will see if there’s profit to be made in a cash back.
But the last couple of months have been interesting because there’s been a lot of lenders actually pulled back out of that space and you’d have to question for the longevity to keep that going, what their profit margins would be. Obviously, it’s really detrimental, it’s a race to the bottom and then they’ve got to throw these really good offers out to attract business. So what happens to the existing loyal clients that have stayed there for a long time? If they don’t have a broker who’s really engaged in looking after them and making sure that, that rate is really sharp all the time, and that takes a lot of time for brokers to actually invest that time in their clients, but it’s so worthwhile.
And it’s also a reason why I think I’ve held, and this is just a personal belief of mine, that days of solo brokers could potentially come to an end. Because it’s a huge amount of compliance that we have to deal with: you’ve got the cyber security issues that are becoming more and more of a concern, managing your back book, as the longer you’re in the industry and the bigger your book becomes, then the more time is required for you to actually spend really, truly looking after those clients.
In the long term, it’ll get to the point where perhaps some of those solo brokers come together and work as a team and be able to cover each other better and support each other.
Clawbacks and their impact on brokers
No one in the industry likes clawbacks. I’m fortunate enough that it doesn’t happen very often, and I’ve got some particular processes in my business that I’ve installed to try and limit that happening, and I’d be happy to share a couple of those. But I think we have to also understand that if we want to be paid for the work we do, that’s a fee-for-service model. If we want to be paid for the value that we introduce, that’s a commission model. So I just think we need to be a little bit careful about if we have this idea in our head that clawbacks are going to be completely abolished, then effectively what we’re saying is we’re looking at a new remuneration structure, and I don’t really think anybody really wants that to happen.
If we went to a fee-for-service model, that’s going to completely change the industry and move it more towards the financial planning industry, and potentially then it will make getting advice from someone like us not affordable for some people.
I think we have to put it into perspective. If most brokers out there actually looked at the volume of clawbacks that they get, they’re a pretty low percentage.
So I think, you know, we have to have a balanced view about it and look at it as a business owner, there’s always going to be certain things that are going to happen in any business that might potentially cause you to suffer a small loss at some point. You know, you could be in a business where you sell a product, and you’ve got a creditor that owes you money and that account never gets paid. So there’s always losses in business, I guess. I think we could definitely move towards a fairer model of clawback, so that it’s more of a stepped model, which some institutions have moved towards.
So that it’s not as significant a hit on paper when it happens, but I don’t have the crystal ball to look into the future, to tell whether that’s ever going to happen.
I think it’s a long way off. As brokers, there’s lots of things we can do. I mean, I know a lot of brokers out there use CoreLogic, as an example, and CoreLogic has a thing in it called the watchlist. So if you load every single one of your client’s property addresses into CoreLogic and have it on the watchlist, the minute something happens with that property, whether it be listed for rent, whether it be listed for sale, it’s going to send you a message to say your client’s property has just gone up for rent, or your client’s property has just gone on the market, and it gives you then the ability to have that conversation with your client. To reach out to them, call them up and say, hey, what’s happening? “I noticed you put your property on the market” or “I noticed it’s up for rent”, “Is there anything I can help you with?”, “Talk to me about what’s going on”, because the chances are if they’re selling, they’re going to be buying something else, right? Or if they’re renting it out, they’ve got to live somewhere else. So I think there’s lots of tools and ways that we, as business owners, can manage that more effectively in our business.
And honestly, I would probably ask brokers out there who are suffering a lot of clawbacks to just maybe have a look at why that might be happening for them and reach out to another respected broker in the industry and ask them to have a conversation around how they manage that in their business, and what process could they perhaps put in place to see that, that’s not happening as frequently and dig a little bit deeper, I think, as to why it might be happening for them.
