Nova Scotia’s Proposed Broker Rules

Nova-ScotiaNova Scotia has new mortgage broker regulations in the works and they look like a win for the province’s homeowners.

In a nutshell, they provide NS borrowers with better disclosure and more assurance that the broker they are dealing with is competent and acting in their best interests.

A few of the proposals may need some rethinking, however. We spoke about those with Mark Coffin, Nova Scotia’s Deputy Register of Credit.

Coffin is the lead man on Nova Scotia’s mortgage broker reform project. He says he’s hopeful the proposed broker regulations will be in place by October.

Among other things, the new regulations are expected to include:

  • Improved and more detailed written disclosures for consumers
  • A licensing requirement for all agents operating in the province (individual agents currently don’t need to be licensed in NS if they’re working under a licensed broker), and
  • Standard educational/training requirements for brokers.

All of this is good law as it raises the bar significantly for brokers in the province.

Canadian Association of Accredited Mortgage Professionals (CAAMP) president Jim Murphy agrees. He told CMT that, “CAAMP supports measures providing rules around mortgage brokering, including licensing, E & O (errors & omissions insurance) and minimum education requirements, most of which do not exist in Nova Scotia.”

But some of the proposed rules need some tweaking. One of those is the potential requirement that brokers show their exact commissions to borrowers. That’s a bit unusual.

Compensation Disclosure

Coffin says, “A majority of respondents to our discussion paper” advised that they wanted to see the exact amount of broker compensation disclosed.

Not surprisingly, industry representatives object to that. “Disclosure of exact commission amounts is something that CAAMP has concern with,” Murphy says. “This was an issue in Saskatchewan where the regulation was actually changed due to our hard work.”

Glen Ward, president of the Mortgage Brokers Association of Atlantic Canada, spoke in front of Nova Scotia’s Law of Amendments committee on Wednesday. “I asked the committee not to require brokers to disclose the amount of their commissions,” he said, adding that, “bank mortgage specialists are commission sales people as well and they are not required to disclose.”

Objectively speaking, telling customers your pay appears to serve little purpose in cases where the client is not paying the broker’s commission. (For prime mortgages, lenders typically pay the broker, not the client.) Few other professions require salespeople to broadcast their pay to clients.

Coffin seems to agree. As for disclosing the actual amount of commission, he says: “I’m not sure the rationale is there for it.”

“I don’t think that the public really gave a lot of thought to why they want the transparency. They just thought the extra information would be good…What you absolutely do not want is the unintended consequence of having it as a bargaining tool for the borrower (to use against the broker),” he said.

“In that the borrower doesn’t generally pay the broker’s commission…to me, the more important disclosure would be the few-sentence recommendation as to why (a client) was placed with a lender.”

Explanation of Recommendations

The short “recommendation” statement that Coffin refers to is a terrific idea—one that should probably be adopted in all provinces.

Basically, it requires the broker to explain why he/she chose a particular lender and product for a client. Consumers will then see that reasoning and be required to sign off on it.

The benefit is that brokers will be motivated to consider suitability even further. Moreover, the client will have to explicitly confirm that they’re on board with the broker’s recommendation.

No other province (that we’re aware of) has a similar rule, although Ontario and Saskatchewan do have the concept of “mortgage suitability” in their legislation, says Murphy.

Reciprocity

Another positive side effect of these regulations will be broker reciprocity. Under the proposed rules, agents licensed in another province will be able to get registered in Nova Scotia more easily.

There’s just one problem. Currently, brokers need to be a “resident” in Nova Scotia to do business there. Coffin isn’t sure if that rule will be overturned. He says there’s “support for both a residency and a non-residency” requirement.

In this digital age of ours, borrowers should have the benefit of competition from out-of-province brokers, as long as those brokers are duly licensed, competent and understand province-specific mortgage procedures. Interprovincial brokering tears down arbitrary barriers to trade and delivers more competitive mortgage offerings to a province’s homeowners.

Coffin says this issue will be decided in Nova Scotia when the final regulations are drafted.

*******

Coffin will be seeking permission to release Nova Scotia’s regulations in draft form (for comment purposes), before they go live. Apparently, that is not usually done. It seems like a reasonable and constructive request, however, so hopefully the Nova Scotia Minister approves it.


Rob McLister, CMT

  1. We, at MBAAC , are absolutely thrilled that we have the support of the Deputy Registrar of Credit in Nova Scotia. Mr.Coffin’s willingness to work with, engage and seek input from the various stake holders in our industry is greatly appreciated. Evidenced by our invitation to attend Wednesday’s session with the Nova Scotia Law Amendment Committee. At the end of the day we are all working towards shared and desired common goals: Consumer protectionism, elevating our industry and our profession as trusted advisers in the eyes of the Canadian Consumer. For those of us in our industry in Nova Scotia that have been lobbying for regulation and minimum education standards during the last 7 years, the old adage,” Good things come to those that wait.”, seems fitting.
    Michelle Drover
    Vice President , MBAAC

  2. Completely agree, the system needs minimum education standards for brokers, which should include at least Macroeconomics 101; that way one should be able to differentiate between protectionism and protection, therefore protect consumers against dilettantism.

  3. “bank mortgage specialists are commission sales people as well and they are not required to disclose.”
    What’s to disclose? bank mortgage specialists sell only ONE lenders products. Their bias is transparent to the customer from the very beginning.
    If it’s really no big deal, can a independant brokers explain why open disclosure of their compensation structure is not in their clients best interest?

  4. To ‘ banker in an ivory tower’:
    Why should independant brokers disclose their compensation structure? Bank salespeople don’t disclose their pay on mortgages, rrsp, mutual funds, insurance, or anything else they sell.
    Do you know what commission your car salesman made on last car you bought, or what the commission was on the last pair of shoes you bought? Why should independent mortg brokers be treated any differently than bankers or other professionals. We are the only people who can TRULY give clients unbiased and honest advice about ALL mortgage products.
    My clients know that I am paid by the lenders and do not charge them a fee. However, they are often misled about bank staff. They believe their banker is on a fixed salary, and have no idea that the banker also has quotas to reach and gets volume bonuses etc. Maybe THAT’s where govt legislation should ensure better disclosure for consumers!!

  5. What’s to disclose? Bank mortgage specialists get paid MORE for selling a higher rate! That’s what.
    I still don’t think mortgage professionals need to disclose their pay. All it will do is let customers use this information against them. Then you’ll see people saying, “If you make X, you should give me Y.” That’s totally unfair because people have no idea how much it costs for a broker to stay in business.
    The question shouldn’t be compensation but rather, are bank specialists and mortgage advisors recommending the best mortgage for the consumer?
    Personally, I’d rather see a rule that requires brokers to list the three lowest cost mortgages that meet all the client’s requirements.

  6. Why should independent brokers disclose their compensation structure?
    TRANSPARENCY and FULL DISCLOSURE. Otherwise, a client cannot perform their own due diligence and truly insure their “independent” broker is working in their best interests.
    If all broker lenders offered standardized and fully disclosed compensation structure, then there would be little to question.
    Your straw arguments and comparing your business with car or shoe sales is weak and irrelevant.

  7. Forcing commission disclosure is the most over-reaching policy ideas I have ever heard. It is completely out of touch with common business practises. We might as well create regulations that force every retailer to disclose their profit margins to consumers.

  8. I don’t agree that his agrument is “weak and irrelevant”. Asking someone to disclose compensation be it for a mortgage transaction or buying a suit is the same thing. Commissions, salaries, bonues etc are all forms of compensation for performing a service / job. Do you walk into the bank and ask how much the bank rep’s make when you sign up for a mortgage / visa / savings account. No right??? If you want full disclosure and transparency, it has to work both ways. Just because one side is self employed and other side represents a commpany, it makes no difference.

  9. What is wrong with knowing how much someone makes on a transaction? Whether it is buying a suit, a car, a pair of shoes or a home… I ask all the sales people what their compensation is on the transaction and how it varies with my different choices.
    If others are not I urge you all to do this also! It keeps us as consumers eduacated and we can deliniate how well someone is acting on their feduciary duty to us. It will also help you find out real quick if you are dealing with a true sales professional, what ever the transaction.
    As for brokers concerned with this transparency… your well earned commission should be fully justifyable to your client and if you have trouble doing this than it will be one more seperating factor between the true professionals in this industry and those less so!

  10. The brokers I have discussed this with make a good point…would you mandate that a car salesperson (fully commissioned) or an insurance rep tell you exactly what they make? No, you wouldn’t. The only “exact amount” that needs to be disclosed is a fee the broker is charging over and above what they are being paid by the lender. This will be a huge can of worms that will hurt, not help, our industry in the long run.

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