FICOM’s new commission disclosure proposal appears to be moving full steam ahead. And it leaves certain consequences to the imagination.

RBC Capital markets put out a report on this recently, and touched on some of those key questions.

The report asks the following (our comments are added in italics):

• “Will mortgage brokers lose market share to banks, given they will need to disclose how much they get compensated whereas bank personnel do not?”
  • It’s tough to judge the overall outcome at this stage (mainly because the rules aren’t finalized), but one thing seems certain. The changes could cost full-commission brokers business from consumers who will use explicit compensation data as negotiating leverage. To the extent that FICOM’s rule eventually spurs more discounting and less advice (since some brokers won’t invest as much time with clients if they’re earning less), that too could have an adverse impact on the channel at large. The question remains, how much of any full-service volume losses will be offset by the volume gains of rate discounters?
• “Will other provinces adopt similar measures for mortgage brokers?”
  • That seems highly likely based on the responses we’ve heard from regulators when asked this question. But there’s nothing to suggest all provinces will follow, and it will take time to become regulation in other jurisdictions.
• “Will similar measures be adopted by OSFI for federally regulated financial institutions and by the provinces for credit unions/caisse populaires?”
  • No and no. Regulators do not see the same conflicts of interests and implied fiduciary duties with lender representatives as they do with brokers.
• “Will more informed consumers demand mortgage brokers use part of their commissions to “buy down rate” [i.e., to get the consumer a lower rate than what was being offered]…?”
  • You bet your behind they will.
• “Does this potentially impact NIMs for mortgage lenders?”
  • It will if the broker’s commission reduction doesn’t offset the lower yield earned by the lender. In time we may see lenders with more favourable broker buydown policies limit or increase their buydown ratios (i.e., make it more expensive to buy down rates).

RBC says, “The ultimate impact is unclear, but we think this is directionally negative for mortgage broker channel mortgage lenders/originators, directionally positive for banks and no impact to mortgage insurers.” This is objective support for the position that regulators are changing the game with this commission disclosure rule.

RBC concludes that, “For now, any impact is likely to be small, but it has the potential to become more significant if these measures expand geographically to other provinces.”

Give that time.