FICOM Proposes More Compensation Transparency

Financial transparencyHow would you like to know what your mortgage broker is earning on your mortgage?

In B.C., you may soon find out. The mortgage broker regulator there plans on doing what no other major province has done: force mortgage brokers to disclose how much they’re earning from lenders on your mortgage. We’re talking exact dollars and cents.

As a borrower, many will love this concept, if for no other reason than satisfying their curiosity. Many others will use compensation information against brokers to negotiate, by asking their broker to give up some commission to “buy down” their interest rate.

It’s a proposal that has brokers in B.C. white-hot angry with their regulator. But FICOM feels an obligation to forge forward with this plan anyway. To find out why (and how), we spoke to Chris Carter, Deputy Registrar of Mortgage Brokers at FICOM to get the regulator’s position.

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CMT: Chris. Thanks for sharing your thoughts with our readers. First off, can you tell us how many consumer complaints FICOM has received in relation to the matter of undisclosed compensation?

Chris Carter: The issue here is clear disclosure of conflicts of interest to consumers and a growing public expectation of transparency in their dealings with the financial services sector. Consumers of financial products are more vulnerable than consumers of other products. Products are complex, intangible and future oriented. Consumers place a high degree of reliance on advisers to help them make an informed decision. A clear and easy-to-understand description of a mortgage broker’s interest in the transaction reduces the risk that advice to the consumer is compromised by the broker’s own interest in the transaction.

CMT: FICOM believes that hidden compensation increases the risk that brokers steer consumers into mortgages that are not in the consumer’s best interest, and I agree totally. But how exactly should consumers use the disclosed dollar amount of compensation and perks to decide if a broker is not acting in their best interests?

Chris Carter: It is up to consumers how they use the information. We have confidence that given the facts consumers will make wise decisions that are in their own best interests.

CMT: Brokers seem to view this as a major rule change with repercussions for their business. You noted that, until recently, FICOM was not seeking comment from industry stakeholders; albeit you mentioned FICOM would receive those comments. Typically, the industry is formally invited to comment on key changes affecting their business well in advance. Any particular reason why that custom was not observed in this case?

Chris Carter: We are observing that custom, and are actively consulting with MBABC, CAAMP and directly with leaders in the B.C. mortgage broker community on how best to implement the changes. The Registrar has received legal advice that the changes are necessary, and has accepted and is acting on that advice.

CMT: Invariably some consumers will focus on finding the broker who accepts the lowest compensation. Are you worried that this might cause some consumers to place less weight on advice — advice that reduces their cost of borrowing in other meaningful ways?

Chris Carter: Those consumers have made a decision to work with a mortgage broker, and in doing so clearly place a high value on the advice a mortgage broker provides. If a consumer subsequently decides that the compensation a broker receives from a lender is the most important criteria in making their decision, that is the consumer’s choice. Consistent with a mortgage broker’s value proposition, that consumer should and would still receive the best advice.

CMT: Since lenders generally pay the same base compensation, base compensation differences are typically not enough to sway a broker’s recommendation (or create a conflict of interest). As such, wouldn’t it be enough to instead disclose:

 

  • Extra compensation? For example, why not simply force brokers to disclose all consideration, perks and compensation over the standard 100 basis points on a 5-year fixed?
  • The percentage of a broker’s volume that he/she has sent to the chosen lender in the last 12 months?
  • The types of compensation and perks received, and how they are calculated?

Why would all of the above not be enough to solve the “hidden compensation” issue and bring conflicts of interest to light?

ficom_logo-300x89Chris Carter: The law in British Columbia requires that brokers describe to the borrower any direct or indirect interests the broker, or a related party, has or may acquire in the transaction. All of the above would be captured by that requirement.

Describing conflicts in terms that consumers can easily understand reduces the risk that brokers provide advice that is not in the consumer’s best interest. Disclosure that frames the interest as a hypothetical (for example, contingent commissions), uses industry terminology (for example, bps), or is vague and imprecise (for example, non-monetary benefits) and is not easy for consumers to understand.

CMT: How would a broker disclose a volume bonus that is contingent on her hitting a certain volume target within 12 months, if the future volume to that lender is unknown?

Chris Carter: We are consulting industry on precisely that type of question. A draft bulletin and improved Form 10 and Form 11 have been shared with CAAMP and MBABC, and we expect that the associations will identify both potential implementation challenges and solutions for our consideration.

CMT: Do you believe this rule could drive down broker compensation if consumers use this information as negotiating leverage?

Chris Carter: As mentioned earlier, it is up to consumers how they use the information. FICOM does not regulate the compensation that mortgage brokers receive for their work.

CMT: You mentioned that disclosing a dollar figure helps consumers judge the value of their broker’s services. Do you believe consumers have the expertise to put a value on advice that could save them thousands of dollars in prepayment penalties? If they cannot value something like that, how can they truly assess a broker’s value?

Chris Carter: We would expect an average consumer would use information from a variety of sources to judge the value they receive from a broker, including how well the broker communicates that value and the merits of the mortgage options under consideration. Under an improved Form 10, consumers would have additional information at their disposal to judge the value of a broker’s services.

CMT: You noted that judging value entails assessing “cost versus performance.” If the lender pays the broker, how does the consumer compute the true cost they’re paying for the broker’s services?

Chris Carter: As mentioned above, consumers are likely to use a range of factors to judge the value they receive from a broker. Clearer disclosure of conflicts of interest provides industry with an opportunity to better inform consumers of the value of their services.

CMT: How can a consumer value the broker’s performance if that performance is contingent on certain events? For example, if a broker recommends a mortgage with a favourable blend and increase policy, the full value of that broker’s performance will only be realized if the consumer increases their mortgage before maturity and saves money because of my advice. So even if a consumer judges the cost, they can’t accurately judge a broker’s value, can they?

Chris Carter: Consumers will likely continue to judge a broker’s performance in much the same way they do now by the quality of their service and advice. In the scenario you outline, you will have provided your best advice to the consumer and clearly described your conflicts. Your ongoing relationship with the consumer and communication of your value proposition is yours to manage.

CMT: Has FICOM considered any adverse side effects of disclosing the exact value of compensation? If so, what potential side effects were contemplated?

Chris Carter: We have heard many viewpoints about the potential impact of the change. The change is necessary to align industry practices with the law in British Columbia, as mentioned earlier, and we are in ongoing consultation with industry about how best to implement the change. Consumers place great value in the services of mortgage brokers. Your success is testament to that. [A good broker’s] advantage is that [he or she] works in the best interests of the consumer and is not beholden to any one lender. Clearer conflict-of-interest disclosure strengthens that advantage and provides consumers with even greater confidence in [the broker’s] service offerings. By embracing change in British Columbia, industry has an opportunity to send a strong signal that it believes in its value proposition and understands the importance of transparency in its interactions with consumers.

Editor’s Note: Our thanks to Mr. Carter and FICOM for providing this open dialogue. CMT’s take on this issue will appear in an article to follow.

  1. Great interview: one thing is absolutely clear, there will be dollar and cents consumer disclosure of mortgage broker income in BC. Better get used to the idea.

  2. It would be great if he answered your great questions! Wheres the answer about “how many consumer complaints FICOM has received in relation to the matter of undisclosed compensation”? 0 complaints I bet. Why does he talk about consulting about implementing when the question was about consulting about major change? 0 consultation I bet. How does telling you what a BC law says answer how the law requires the change? The change looks way more than the law says. People who are in charge of making sure mortgage brokers respect the law need to respect the law. Lawyers and courts love this kind of stuff. Mortgage brokers, not so much because they get to pay for this nonsense.

    1. A + B = C

      bad system for regulating (FICOM) + people who don’t know how to do it = time for a real change (new system with new people)

      Guess people who are using names are out of province, no fear. The rest of us need to work.

  3. What is his background? It doesn’t look like he knows about mortgage brokering business, law, policy. He needs to look at the whole picture to see how the change will change business. Maybe brokers should work for lenders only. That’s why real consulting first is good.

  4. Could have been a great interview. You asked A questions. Too bad you got D answers. Was the interview live? It looks like he had time to carefully word answers to dodge them.

  5. Everyone in the Canadian mortgage industry should be gravely concerned about this. Mr. Carter has stated that FICOM is excited to be the first Governing Body in Canada to enact such disclosure. He has said that” he expects all other Provincial Regulatory bodies to follow the lead of FICOM in the near future. This could potentially be catastrophic to BC Brokers and eventually all brokers/agents in Canada.

    You will immediately have Bank Mobile Sales force reps and Bank employees asking customers why they would ever pay those huge fees using a mortgage broker/agent when you can get your mortgage from us and pay nothing. (FICOM doesn’t regulate Banks).

    It is frightening to watch a Regulatory body as powerful as FICOM insinuate that this is basically a done deal. Our company has worked well with FICOM for years, and has for the most part supported their oversight and their appetite for protecting consumers.

    This is a huge mistake. I could understand this being implemented on second mortgages and private mortgages but this will be incredibly damaging to our Industry should it apply to traditional A lending.

    It clear by the above interview that even Mr. Carter is struggling to articulate logical reasoning for this new directive. Rob, I am a big supporter but I am stunned that you did not defend your Industry vigorously when speaking with Mr. Carter. You are highly educated in our space, have a terrific reach and influence and should be defending our Industry valiantly. PEOPLE FIGHT BACK, GET INVOLVED, MAKE A COMMENT HERE, THIS IS INCREDIBLY IMPORTANT TO THIS WONDERFUL INDUSTRY. PLEASE ARTICULATE TO FICOM WHAT THIS WILL DO TO OUR INDUSTRY. Hey rob, make sure you correct my spelling as usual :)

  6. Another day, another pointless government form. MAKE IT STTOOOOOOP!
    This form applies to mortgage brokers but not to bank employees.
    Can the playing field tip anymore?
    Are we being pushed out the door?
    Have we been bad, is this our quiet time?

  7. Ficom really seems to be coming down hard on BC Brokers as of late. First, no service agreements allowed or repercussions (ie fees) for clients who sign a commitment, then decide to walk. Now, they are asking for us to disclose our income to clients when it’s only going to have negative ramifications for the BC broker industry. I understand transparency, but I’m not sure how clients knowing what we make will help anyone. For example, will knowing the profit margin of a car (or the salesman’s commission) we are buying ultimately affect our purchase decision? Not likely. With Realtors it’s different, since their clients are paying them directly. Brokers offer competitive, low rate mortgages and our clients simply should not have a right to have access to this information. Across our great nation, no other province (or bank in BC) mandates these forms, so why in BC is this happening.
    I think ficom needs to focus on positive growth and other issues altogether. How about increasing experience and education levels to be a broker in the first place? How about simplifying the forms (form 10,11,12 and the APR disclosure). If the form 10 and APR disclosure were much shorter (ie 1 page) and combined it would help the consumer see the real picture. Clients generally don’t understand all 20 pages they are signing anyway, so introducing our commission is only going to make it more confusing. Almost all other businesses are not required to disclose this information. I have no idea how much my insurance broker made from me, or how much my bank makes off my investments in their brokerage account. But It didn’t affect my decision on who to work with since I (and consumers) have a clear measuring tool called price (ie rate).
    Here’s what the net result will be: Clients asking for kickbacks$$, more shopping w banks etc, perhaps more trailer compensation paid by lenders = no real benefit to consumers. If anything I’ll send more deals to lenders (ie red bank) who have much higher penalties, just because it’s easier to get the deals funded there. Also, consumers seem to not question what the banks do as much as the other lenders.
    I could go on forever, so enough rambling. FICOM, we need you to have our back and work with us, not against us. You may believe brokers have it too easy in BC and make a lot of money, but look at the numbers. The agents at the big networks might average $50k/year and this change will only hurt families and brokers trying to make a living. This red tape needs to be examined further before it causes damage to our industry.

  8. BC Mortgage Brokers are the most highly regulated Mortgage Professionals in the country. We have always had high standards in the BC Mortgage Broker community and have all been licensed professionals years ahead of the other provinces. If it ain’t broke don’t fix it. Does FICOM have nothing better to do than to take it upon themselves to make BC the first province to have to Disclose compensation. I am sure they could come up with some legalese to satisfy THE LAW in BC that he keeps referring to that sounds like we are blatantly committing a crime. We work our butts off for our clients and with the information readily available to the consumer on the internet regarding mortgage interest rates we have to be on our toes and be competitive with whatever product options we are offering to them in order to win their business as there is always someone/banks waiting to take the business by buying down the rate. Mr. Carter was ready to take the Fifth as he basically would not answer the questions and kept say the Consumer will Judge our Value from a variety of sources!! We all know what is going to happen it will be Slash and Burn racing to the bottom. I think it is time that we campaign through MBABC and CAAMP and all the associations across Canada to insist it is time for the Bank Mobile Specialists and Personal Bankers be Educated and Licensed if they are going to continue giving the Consumer mortgage advice. They can also disclose their compensation and bonuses for selling life insurance and mortgages with astronomical penalties and collateral mortgages that have registered 125% of the clients property value. This feels like a witch hunt to me! Time to Retire!

  9. I agree with Marge! This practice has me fuming and I’m in Ontario. Why make the change if there have been no consumer complaints?! The consumer isn’t paying the compensation, like many other arrangements. Are you now going to ask the car salesman to disclose their compensation? Newspaper delivery boy? Travel agent? All these people receive some kind of commission so it should be universally applied. Why single out mortgage agents when this is not a predatory industry if regular lender compensation is all that is received? Shake my head at the regulators who seem to be acting in the better intereat of the banks. Who, should also have their salespeople disclose their compensation too! So angry at this idea.

  10. Chris is wrong. FICOM does regulate broker fees. Brokers are not allowed to charge cancelation fees. Clearly FICOM fiercely believes that mortgage advise should be free.

    The conflict of interest law as written is up for interpretation. To date FICOM has interpreted the law one way and now they want to interpret a different way. A different lawyer would interpret it differently. If this was actually consumer driven I would be for it.

  11. Hi All,

    This is Canada where regulators jobs depend on producing more regulations. Why? it is what regulators do. It makes them seem relevant to their jobs. This way they get more funding to hire more people to regulate.

    This is what regulators do.

    Try to stop them? I have no idea how to do so. They aren’t really interested in growing the mortgage broker market, so they really aren’t partners.

  12. My question around this topic is primarily focused on why only the Mortgage Broker profession? It’s interesting that FICOM has chosen “consumer protection” as their primary focus according to Mr. Carter. If this is truly the case, why is FICOM not working harder to regulate all of the institutions and all of the individuals working in these institutions. Do the consumers affected by the advice provided by individuals working in these institutions not matter as much? If FICOM is truly serious about protecting all CONSUMERS within BC, should they not institute this regulation for all involved in financial transactions that affect a consumer’s financial well being? Based on the lists available on FICOM’s website, there are millions of consumers with whom FICOM is responsible for “protecting”.

    Here’s a list of the institutions or Acts on FICOM’s Website under “who we regulate”;
    – Real Estate Services Act
    – Real Estate Development Marketing
    – Strata Property Act
    – Mortgage Brokers
    – Pension Plans (710 Listed plan)
    o There are approximately 720 employment pension plans registered in British Columbia, including public sector plans. These plans cover approximately 513,000 members who are employed and accruing benefits, and 491,000 retired and other members entitled to benefits.
    – Credit Unions (44 Listed)
    – Trust Companies (47 Listed)
    – Insurance companies (232 Listed)
    – Credit Union Deposit Insurance Corporation (42 Credit Unions)

    Understanding the true motivation for this regulation should be revealed. Once again, a regulatory body will only cause the consumer’s it is trying to protect more grief. The Mortgage Broker industry has created a truly competitive environment for consumers and forcing large institutional lenders to remain honest in their offering to consumers. Mitigating or eliminating the mortgage broker industry in BC and possibly Canada will only cost consumers more money and frustrations. A Bank of Canada report published in 2011 reveals clearly that in the absence of competition, large institutional lenders consistently offer their existing mortgage consumers higher rates and less favorable terms. What a shame that consumers will ultimately pay the price here if this is passed.

  13. I find it absurd that everything Mr. Carter states is a FICOM concern in our industry about Conflict of Interest, Transparency, dealing with one lender and providing advice that might not be in the consumers best interest is EXACTLY what the Bank Mortgage Specialists do without any mandatory education or licensing. Most of them have no idea what a Collateral Mortgage is nor do they explain it to the consumer along with their methods of using posted rates to calculate penalties when they sell a mortgage to the consumer. Who should John Q Public really be worried about getting advice from? A bank employee that was a Teller yesterday and a Mortgage Specialist today who has their EMPLOYERS best interest not the CONSUMERS or an Educated Licensed Mortgage Broker that can provide options to the consumer from more than one lender? It ain’t over until it’s over!! There is some backroom deal going on with the banks to break our industry no doubt about it.

  14. This guy needs to understand the difference between advisers and decision makers. Advisers advise -decision makers decide. An adviser is accountable to the decider but a decider is accountable to people impacted by the decision. A good decider understands the advice and does not blindly follow it. A good decider understands that receiving legal advice to go one way does not mean that there aren’t good arguments to go the other way. A good decider needs to understand all of the choices before deciding. That is why real consultation is real important for the decider. The decider might learn important things. This guy seems to have no ability to evaluate advice, get real consultation, or defend a decision he is making except throwing the legal adviser under the bus. You are right Marge, most of the answers are rambly and avoid answering the questions. Being slippery might be good politics but it is not good regulation.

  15. In general I have never had a problem disclosing to anybody who has asked what I make on each mortgage, however I have not been asked that often. After explaining that I am 100% on commission and that the client can leave me anytime, most have felt comfortable with me getting compensated the way I do. Most, if not all, felt I had earned whatever commission I will be making based on the enormous effort, time and professional advice I had provided and will continue to provide for the life of their mortgage.

    My question around this topic is primarily focused on why only our profession? It’s interesting that FICOM has chosen “consumer protection” and the laws surrounding it as their primary focus according to Mr. Carter. If this is truly the case, why is FICOM not working harder to regulate all of the institutions and the individuals working in these institutions.
    Are the consumers affected by the advice provided by individuals in these institutions not matter as much?

    Here’s a list of the institutions or Acts on FICOM’s Website under the heading “who we regulate”;
    – Real Estate Services Act
    – Real Estate Development Marketing
    – Strata Property Act
    – Mortgage Brokers
    – Pension Plans (710 Listed plan)
    – There are approximately 720 employment pension plans registered in British Columbia, including public sector plans. These plans cover approximately 513,000 members who are employed and accruing benefits, and 491,000 retired and other members entitled to benefits
    – Credit Unions (44 Listed)
    – Trust Companies (47 Listed)
    – Insurance companies (232 Listed)
    – Credit Union Deposit Insurance Corporation (42 Credit Unions)

    Logic would suggest that if FICOM was truly interested in protecting consumers, they would be mobilizing to implement the same disclosure requirements for all of the industries and individuals they Regulate.

  16. I will never disclose my commissions whether I am “forced” to or not. They are many ways to work around that I can think of already so don’t lose any sleep over it people.

  17. How much is Chris Carter’s annual salary? and how much did he expense in travel or other related expenses last year ~ on the public dime!?
    Actually, how much do all the FICOM employees earn and what are their employment pay tiers?

    1. If you ask they have to give it to you. You are a taxpayer and can get whatever information you want. They have no choice. We have freedom of information rights.

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