Now that FICOM’s B.C. broker compensation disclosure is a done deal, many want to know how it helps consumers make better broker decisions.
We asked the Office of the Registrar of Mortgage Brokers for its take…
CMT: What do you want consumers to do with this new required compensation disclosure?
FICOM: Consumers may use that knowledge in any number of ways. For example:
- They may ask how compensation paid by one lender compares to that paid by another.
- They may ask how compensation influences advice.
- They may use compensation to assist them to judge the value of the services they receive.
CMT: Have you produced any consumer materials to assist mortgage shoppers in interpreting this information?
FICOM: In our April 2016 open letter, we recognize that the development of information for consumers is an important part of the disclosure requirements. Materials will be available for consumers when the guidelines come into force on June 30, 2017.
We encourage industry to explore how it can contribute to our shared goal of an informed consumer, and look forward to ongoing discussions.
So it appears that FICOM will develop some sort of guidelines to help consumers decipher the raft of new compensation information they’re about to receive. That’s terrific. A key concern about FICOM’s new policy is that some consumers could make bad decisions without compensation data being put into context (as this study has shown).
One obvious example is the borrower who compares disclosures and then chooses the broker who “buys down” rates more, and displays less commission. Such brokers work on volume. By their very nature, they can’t afford to spend as much time advising clients—compared with full-service mortgage professionals. By receiving less analysis and guidance on term selection, interest saving strategies and mortgage restrictions, some discount broker clients could potentially choose mortgages with higher overall borrowing costs. (This is coming from someone who runs a discount brokerage company.)
This is where FICOM can add value. It can counter some of these side effects by helping consumers understand:
- What is routine for broker compensation, volume bonuses and status benefits
- The potential tradeoff between compensation and advice
- The importance of overall borrowing cost and contract terms, over upfront rates and compensation
- How the breadth of products a broker can access (or chooses to access) can impact their recommendations
- How research suggests that brokers save borrowers more (overall), regardless of the lender compensation earned by the typical broker
Ideally the disclosures would focus on differences in compensation (i.e., identifying when a broker is making abnormal reward for facilitating a mortgage). Barring that, FICOM would do consumers a favour by crafting practical information like that above — and tossing in a few examples that borrowers can easily digest. Without this context, comp disclosure could distract many folks from what matters most: overall borrowing cost, not price.