FICOM, the mortgage broker regulator in BC, wrote an open letter to mortgage brokers regarding their intentions to update the legislation with respect to compensation disclosure. This should be mandatory reading for every mortgage broker/agent in Canada. Better still, get involved and email FICOM your opinions and concerns as they have requested. You might also contact your industry associations to see what position they are taking. New legislation is coming, with or without your participation. Don’t miss a chance to have your say.
For what it’s worth, I will give you my opinion. First of all, anyone who thinks the regulators’ efforts to protect the consumer are easy, or misguided, should spend a few days in their shoes. Look no further than the number of complaints they receive each year. I think FICOM’s open letter does an adequate job of describing the risks, or conflicts of interest, associated with our industry. There’s a long list of potential influences on the mortgage intermediary: Tiered pricing, volume bonuses, proprietary points, non-monetary rewards, business partners/relationships, to name a few. Do you really think the consumer is adequately protected?
This level of protection is not unique to the mortgage industry. How many more commercials do I need to see about how my financial planner gets paid. The financial services sector continues to get more sophisticated, and as FICOM pointed out in their letter, “there is increased international and national regulatory focus on compensation transparency in the financial services sector”.
Consider the following purchase transaction on your next deal, and the parties involved vis-à-vis their compensation disclosure in dollars:
- Realtor (full disclosure)
- Lawyer (full disclosure)
- Default Insurance (full disclosure)
- Appraisal, if applicable (full disclosure)
- Home Inspection, if applicable (full disclosure)
- Mortgage Broker (?)
Yes, the above list represents a typical “prime” application. If this was a sub-prime application (i.e. private lender), there would be full disclosure on mortgage broker fees and lender fees. I don’t think it is mortgage brokers working in this market that are making the most noise. This is a greater concern in the prime mortgage market.
I realize borrowers pay the other parties listed above, directly. But how are mortgage brokers different? On the one hand, we are providing a service, and paid for it, just like everyone else. The consumer is the beneficiary of our service, just like everyone else. On the other hand, unlike everyone else, mortgage brokers are the only party whose compensation is unknown to the consumer, sub-prime applications notwithstanding. Is this lack of transparency good for the consumer? Then add all the conflicts of interest to the equation. This is the dilemma FICOM is looking to solve.
It is a similar situation for most of the financial sector. The nature of our service is different. Yes, we ALSO work for the FI, and we have a number of them to choose from on every application. But as I said earlier, in addition to our base commission, there are a number of additional perks which we can receive. They can also potentially influence our advice. Hence, the need for greater transparency.
I don’t pretend to have the solution, nor am I suggesting FICOM’s current recommendations are the answer. But if the goal is for greater transparency so that consumers are better informed, as a consumer advocate, I’m on board. At this stage, we all need to get involved so that the solution is something we can all live with. Changes are coming, and it is up to us, in the industry, to provide the necessary feedback so FICOM and other regulators can achieve the balance they are looking for.
To read FICOM’s’ letter, click here.