The knock-on effect of the financial services royal commission continues to be felt across listed companies in the sector.
The banks have been hurt by poor publicity and are waiting for possible changes to flow on hw they treat their customers; the banks are also quitting insurance, mortgage broking and financial advice (in most cases) and know they will have to be far more open about their dealings with customers – individuals, small business and farming.
Insurers and financial advice companies such as the AMP have been battered, and next month it will be the turn of the general insurers, such as IAG to feel the blow torch of negative publicity.
Mortgage broking was an early recipient of poor publicity, especially on commissions and the way they handled customer loan applications and the poor level of disclosure and transparency.
Yesterday the Mortgage Choice announced the overhaul of its remuneration model that will see a $30 million one-off hit on its full-year profit.
But its more quiet revolt of its franchisees that are driving these changes rather than the royal commission – its outcome won’t bw known until late this year at the earliest.
The listed mortgage broker is facing an internal unrest from its franchisees over what they see is an unequal business model with the company taking too much and not handing enough income back.
The company yesterday outlined a new method for splitting commission revenue between the itself and its franchisee mortgage brokers.
Under the changes, which it will offer to franchisees from next month, Mortgage Choice said the average commission payout rate would rise from 65% now to 74%.
Most of the increase would come from changes in the trailing commissions it would pass on to mortgage brokers, Franchisees will be able to receive commissions based on either their new lending, or existing loans they had written.
Mortgage Choice said it would fund some of the increased payout by launching a program to cut its cost base by about 10%
Mortgage Choice shares fell nearly 5% in early trade, but turned around and ended the day up 3.5% at $1.48 (a more buoyant wider market played its part in that rebound). But the rebound was a sign the investment market understood the changes and their need.
The company the changes will see a non-cash hit to its net after tax profit in 2019 of $30 million.
Full-year profit for 2017-18, to be announced next month are likely to be between $23.2 and $23.4 million, and next’ year’s profit is projected to fall to $16.5 million under the changes.
CEO Susan Mitchell said on Thursday “These changes are the product of extensive consultation with broker franchisees and the recognition we needed to rebalance our service provision with more competitive remuneration,” said Ms Mitchell, who was appointed to the role in April.”
“Franchisees will have access to the same core services, just delivered in a more efficient way. At the same time, we are investing in a new broker platform that will improve broker productivity and enhance their service levels to customers."
