Are brokers equal to financial advisors?

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Do brokers provide the same value to customers as financial advisors – and should they be encouraged to charge similar consulting fees? Two brokers go head-to-head on the issue.
“An investment advisor has to master a huge universe of products and become a tax guru to serve their clients in a meaningful way; most don't but the great ones have a daunting learning curve and relentless study,” Ron Butler of Verico Butler Mortgage wrote on “There is no comparison in depth of complexity a good investment advisor has to master compared to a mortgage broker and guess what; the public don't want to pay investment advisors a fee either.”
Butler does, however, admit that certain mortgage deals – especially those on the Alt-A side – require a level of knowledge and expertise.
On the other side of the conversation, brokers argue the value they add is in exposing the consumer to hidden product pitfalls – the sort of information no one else in the industry willingly provides.
“Please do not make light of that fact that we explain the vast difference between fixed and variable if rates rise, the dangers of a collateral mortgage, and high penalties from some banks,” Don Johnstone of Real Mortgage Associates said. “It may not seem like much but you know what? We are the only ones telling them.”
The conversation stemmed from one industry player’s argument that the broker industry will eventually shift to a fee-based model, not unlike the practice preferred by a growing number of advisors. They’re moving themselves to a fee-based compensation model ahead of full implementation of sweeping regulatory reform focused on increasing commission transparency.
“There is no doubt about the value good and consistent advice provides -- but unless we normalize and enforce a commission structure that various lenders provide us, the unbiased fiduciary value of our professional advice will suffer,” Aaron Vaillancourt of Mortgage Architects wrote on earlier this week. “This likely won't happen because aligning broker sentiment and behaviour is worse than herding cats. And so, the fee-only model is coming, as it should.”
  • Guy Lew on 2015-04-16 11:47:20 AM

    Currently as a mortgage agent, I use to be a Financial Advisor (FA). I got out because I did not believe in the products that were sold. The more aggressive advisors with large portfolio's do need to understand how to grow personal wealth but they are restricted to selling the company products no different than selling a mortgage product. As an advisor they face annual bitchfest from clients on why their stock tanked, mutual fundd only earning 3%; while a mortgage agent that understand real estate investments can help their client earn 20% or higher on Real Estate. The FA's are more regulated on investments than mortgage agents and the sole purpose of me switching. Now my clients that invest in lease purchases (rent to own investments) earn a minimum of 25% return per year and secured by real estate and not just a piece of paper. I even have FA's referring clients to us to invest.

  • Jerry Quigley on 2015-04-16 12:03:16 PM

    You can't really be serious, Guy Lew.....! Just trying to get a rise out of us, eh!

  • Jesse D on 2015-04-16 12:04:48 PM

    FA's are just as important as Mortgage Agents who are just as important as Realtors, etc. Clients can go get biased advice from the banks and FSBO firms but they are rarely steered in the right direction. We all serve a purpose and as long as we do what is best for the client offering solid, educated advise, our worth is equal just in different areas.

  • James on 2015-04-16 12:05:01 PM

    There is an awful lot of chatter about broker compensation models lately...

  • Broker on 2015-04-16 12:05:35 PM

    After meeting with many FA's, dealing with a couple, and hearing a ton of stories from clients... I have learned one thing. FA's are the 21st Century greasy car salesmen. They force products that are not needed for the sole purpose of earning commission. I know I shouldn't classify ALL FA's this way but if you have dealt with enough, you know that MANY operate this way.

  • Maurice on 2015-04-16 12:35:58 PM

    I am a FA, and mortgage agent. I operate with administrative assistants. I think hate the game and not the players.

    I am sorry but if you are only licensed to sell mutual funds or real estate or insurance or mortgages, or mortgage investment products.
    And not able to carry much selection on your shelf so to speak. You have a vested interest to slam your competition.

    You won't hear RBC employees saying that a mortgage broker is the way to go. You will probably hear person say RBC is the only place to be.

    Broker you are incented to push what you sell. If you carry everything on your shelf you then can be a little more open minded

  • Jeff on 2015-04-16 12:40:38 PM

    Everybody is in the same game. Mortgage Agents (that like to call themselves brokers) or Financial Advisors. We all like to run for the roses but some of us just want a cup, but don't want the race.

  • Don Johnstone on 2015-04-16 12:50:13 PM

    In Canada anyone can call themselves a "financial advisor". What you must be licensed for is to actually "promote and sell" the various products such as life insurance, mutual funds, mortgages and so on. I agree with Ron Butler that doing a triple "A" vanilla mortgage requires limited training compared to some other disciplines. It is time for whole industry from mortgage brokers to FA's and bank reps to admit to the public. We may be educated, we may be licensed but at the end of the day we are salespeople. Salespeople who derive most if not all of our income from sales commissions. You buy=we eat, you don't buy= we don't eat.

  • Toronto AMP on 2015-04-16 12:50:55 PM

    The entry barrier to the Mortgage Industry as well as the Financial services industry (not to mention Real Estate) is quite low IMO. As I continue with my career I realise the importance of diversified professional education and experience in order to provide the best service to my clients.

    Often as part of the mortgage process I become one of the few people that have been given a thorough view of a client's financial and investment picture and typically there are pearls that can be shared not directly related to the mortgage transaction. Any commission driven industry will bring out the worst in some participants, but I always approach my deals with the focus on providing the best advice possible regardless whether I ultimately receive full or any commision at all. This is a luxury afforded me by my age and financial stability. Some of my best investments have been providing advice that eliminates a commision up front but creates an extremely strong long term trusting relationship with excellent referrals that generates far more income over time.

    PS: I am taking my CSC at U of T Continuing Studies in September with the intention of also completing the other educational requirements to receive my CFP designation in time to continue to provide a much higher quality of service to my clients. This approach allows me to be far more valuable than a bank employee to my client, and likely puts me ahead of a large cohort of competing agents & brokers.

  • Jim Thornton on 2015-04-16 1:07:25 PM

    @Broker - When making strong accusatory comments like "FA's are the 21st Century greasy car salesmen", you really shouldn't hide behind anonymity.

    I was licensed as a Life Insurance agent, Mutual Funds Salesperson and Mortgage Broker for about 12 years total. October of last year I decided to sell my Investment/Insurance business. Not because it is sleezy, not because I didn't want to offer the products, but I realized that you can really be GOOD at it all. Not if you are doing it properly. I didn't just sell the highest commission products, there was only one thing that I cared about with my clients and that was their portfolio performance (at least regarding the investments anyway). In 2008 when everyone else was dealing with clients screaming at them for dropping, I had one client call me to find out why. I properly matched my client's portfolios to their risk tolerance and spent a lot of time setting them up in the first place.

    Now, what does this have to do with the article? FA's are not the same as Mortgage Agents/Brokers. The whole relationship is different with the suppliers and agents/brokers. In the investment world, you have suppliers and those suppliers respect that the client is YOUR client. In the mortgage world this is not the case. Once you place a mortgage for a client the lender sees that client as THEIRS and they no longer respect the brokers efforts. After that both the broker and bank are battling for the repeat business.

    If a change was to take place, changing to a recurring revenue model would be the best way. Brokers and lenders should work together at maintaining the business, but mortgage brokers should be compensated for maintaining the lender on the file. Some lenders have been doing this with trailing commissions and now there are renewal commissions. Reduced commissions on renewal, but they at least are showing their respect/loyalty to the mortgage broker for their efforts.

  • Ron Butler on 2015-04-16 2:44:06 PM

    I have known many certified FAs who have quit that business and this is what I hear: too much compliance, too high continuing education requirements just to stay current with compliance and taxation and (wait for it) too many sophisticated clients are switching to online ETF and bypassing advisors. So their world is tough too.

    At the top level of FAs are those who are Certified Financial Planners and the ongoing education requirement for that designation makes AMP look like a joke. So I stand by my point: for top financial advisors education and compliance is far tougher than in the mortgage broker world.

    We should never mistake underwriting skills and knowledge for basic product knowledge (because we don't have that many products), some brokers are masters of underwriting but that is something the public never really sees, nor is it something that is taught in a course.

  • JG on 2015-04-16 2:45:47 PM

    I agree with a lot of Jim Thornton points...I am both a mortgage agent and a FA (I have been for the last 15 years)..(and yes with the CSC,FMA & AMP). I take exception to the referral that FA are "the 21st Century greasy car salesmen". Really wonder 'what circles you run in'??
    It has been my experience, that the relationship with the mortgage client is much different than that with an investment client. The level of trust is much high on the investment side. For the most part (not all), on the mortgage side, it is all about best rate (especially for those "vanilla" mortgages), what is your best rate?? It always seems that lenders (banks) want to take total control of the client after they get them and snub the mortgage person, where on the investment side, that is not the case at all....I really believe, if the mortgage industry wants to change the compensation model, the lenders (banks) need to stop running out there and buying business, and start rewarding customer loyalty...but lets face it, does anyone "really think that that is going to happen"???
    If the banks are not loyal to their customers, what makes one really think that they are going to be loyal to the brokers bring them the business??

  • Jim Thornton on 2015-04-16 3:19:12 PM

    Ron Butler: Don't assume that because someone has a CFP designation that makes them a "top level advisor". I've known many FA's that do not hold a CFP designation that are top level. That said, I've also met many CFP designated advisors that are nothing more than product peddlers. They have the education to be "top level" but in practice they just worry about commissions.

    As far as the comments regarding:

    Too much compliance: There is a lot of compliance, for good reason. The business is not setup for a one-man shop if you want to be successful. You need assistants and sub-advisors so that you can properly segment your clients and give the attention needed to each group. Unfortunately, the compliance requirements are standardized even though every client's situation is different. It's not any tougher than the mortgage broker world... Just different.

    CE Requirements: That's hogwash. Plain and simple. For 12 years in the business, without a CFP designation, I *easily* met the CFP CE requirements because I needed to stay informed with industry updates, changes not to mention the products. If you are worth your salt doing 30 hours of CE training per year is not that much. It's only 35 minutes per week to stay on top of an ever changing industry. Anyone that says that is too much is just lazy.

    Sophisticated Investors: The issue isn't that investors are more sophisticated. The issue is that the average investor doesn't know how to analyze the risks associated with a typical investment. They hear the media talking about fees for investing and that they are high. The fact is that if you want to invest you are going to pay some body something. Investors hear that ETF's are so much better because the average mutual fund doesn't out perform the market so go with the ETF's. However, if the advisor is using products based on building a strong portfolio will top quality money managers, you will out perform the market. If Warren Buffet offerred to manage your money for you, for a fee of 1% of your portfolio, are you telling me he can't bring any more experience and value to your investments than stock market in general. There are something like 10,000 mutual funds in Canada so there are a LOT of bad funds pulling the "average" down.

    Mortgage Brokers are not the same as Financial Advisors. FA's should not be put any higher "figuratively" than mortgage brokers. For instance, many FA's would just throw their clients into a Manulife One account saying that it is a great way to do ___________. The fact of the matter is, it's not great for everyone, and there are better products out there to accomplish the same thing with more savings. BUT.... They don't have access to those products. So, are they doing that because it is the best for the client or because that is all they can sell.

    With regards to your underwriting comment: You can't see all of the training and experience that your doctor has had. Does that mean that it isn't worth anything? Mortgage Brokers (at least good ones), understand the underwriting aspects of the business. They know there products (and there are a lot of them) so they can recommend the most suitable products to their clients. In addition, they advise the clients of all the pitfalls, advantages, disadvantages that are associates with a particular mortgage/product. Just because you take it for granted, doesn't mean that clients do. My clients are very grateful that I spend the time with them.

  • Ron Butler on 2015-04-16 3:36:25 PM

    @ Jim........... not hogwash, I was comparing FA CE to the mortgage industry where required CE is 1.5 hours per year, so I guess I am right the FA has a ton more.

    Think about how many hours it took to get a CFP compared with AMP, there is simply no comparison. Even the entry qualification and testing has a 4 times factor in time spent to get an initial license. On the compliance side you suggest you do need assistants to adequately manage the compliance, a high volume mortgage broker spends about an hour a month on his own dealing with head office compliance issues.

    Overall I think I am dead right, a much stricter, more complex and a higher barrier to enter and thrive business on the FA side than on the mortgage brokerage side.

  • Jim Thornton on 2015-04-16 3:43:48 PM

    Ron: Sorry... I forgot to type that in, but yes the AMP requirements are a joke in comparison to CFP.

    But from your posts, my perception is that you are not valuing the work we do as mortgage brokers/agent discounting much of it as "salesmanship" (from another comment).

    You are right in that FA's have a higher barrier of entry. But that doesn't mean that the work we do for clients is not valuable.

    For example, just this morning a client was talking to me about how a Solar Power Salesman was selling him a $30,000 package for his roof and how much value it would add to the house. Not that I'm experienced in valuing houses, but I told him to talk to an appraiser before he makes a decision. To me, that is valuable advice. And, I'm not charging him for that on a fee-based, it is part of my after-sale customer service (as I'm sure it is with you and every other broker).

  • Brian Lambert on 2015-04-16 4:08:41 PM

    I had to chuckle to my self yesterday reading all the comments on the Fee for Service. Ron was right pointing out that a mortgage agent would have a hard time charging a fee for giving an A client a good rate? That's the problem and I have written about it before on this forum. No advice no fee? Where as we are set up to offer Financial planning. Mortgages, Investments, Term Insurance, Critical Illness, Long term care, Health Care, Dental and Travel Insurance. When a new client comes in for a consultation. We create a Financial Management Plan. We start with the mortgage and debt cost as they are the highest cost. If they have a lot of debt (most families do) we refinance the debt. With the savings we can see where it best fits. Older clients may need an aggressive mortgage pay down plan. A younger family may need debt relief with lower payments. Life insurance we save them a lot, up to 60% for twice the coverage. We look at their investments, as most banks rarely contact clients unless they have 100's thousands invested. We can then offer them a host of other services. Cross Marketing. If a client has only one services, you will loss them or the bank will pull them back in. If the client has 2 or more services you become their go to advisor and they will send their family friends and co-workers to you. You develop life time relationships with them. I now have many of my clients sending their young adults to me for their first home purchase and they know we will also work with them early on, for their investment plans. I CHARGE A FEE and always have. Clients understand they don't get good advise for free. They got it free at their banks and got nowhere. Unless you are willing to change your business model you will grow slowly or get frustrated and leave the industry. Link up with partners, FA's, Ins A, Accountants, Auto In A, ect. I worked with a large brokerage years ago and the owner was impressed with how my office was set up and decided to hire insurance agents and FA to work from the head office. It didn't work as there was know one in the individual office to link up with, it only worked as a referral source and clients didn't buy it. I left because the same FA and insurance agents would call my client base infringing on my clients (bad business) Clients have to, KNOW YOU, LIKE YOU & TRUST YOU, before doing business with you and you have to make contact a minimum of three times before they'll trust you. By the way my fee's are between ($500-$800, after service fee). If you save the client a lot of cash, give them better advise than they have ever received before, they never begrudge you the fee and always come back for more advise.

  • Toronto AMP on 2015-04-16 5:03:18 PM

    @Brian +1

  • Toronto AMP on 2015-04-16 5:03:33 PM

    @Brian +1

  • Jim Thornton on 2015-04-16 5:16:07 PM

    Brian: You are not charging a fee for arranging a mortgage. You are charging a fee for the whole package. That is different. The original broker that brought up the whole fee thing was saying that we should eliminate commissions and only be compensated by fees because it would be better for the client. That is just simply not true. Brokers would absolutely lose the first time home buyer market (which is where our market share is the highest).

    Ron was absolutely correct in saying that clients aren't going to pay for something they can get for free. However, I disagree with his opinion that most of what we do is salesmanship. Giving clients advise on navigating products is not salesmanship. It is our duty and responsibility to our clients. We need to look out for them, that is why we get paid.

    Ron: BTW... I was not saying what you were saying is hogwash. I was saying that the advisors that left the business saying there is too many CE requirements was lazy. If you can't put aside 35 minutes a week to brush up on the industry, products, etc. Then you have no business managing millions of dollars. What you were saying was dead on. I just think we are more valuable than you previously made it sound.

  • Brian Lambert on 2015-04-16 5:28:55 PM

    @ Jim Thornton: I charge the fee on the Mortgage refinancing. It is the allocation of the savings on the refinance that we can do the planning for other needs which forms the whole package. It is hard for most clients to come up with the fee out right, just like some can't even afford to pay for an appraisal fee. We find money for clients first to develop a Financial Management Plan. You have to start some where as most peoples finances are deplorable, with no direction. Mortgage, Insurance Protection, emergency funding, Investments ect:

  • Ron Butler on 2015-04-16 5:35:33 PM

    Make you deal Brian, you send the clients to me for a better rate on the refinance, free appraisal, we will underwrite a portion of the legal fees and NO BROKER FEES AT ALL!! Then we will send the clients back to you for the stupendous planning and you can charge them a huge fee for that. Because you deserve that fee................ right?

  • Victor Simone on 2015-04-16 5:47:46 PM

    If we are talking about just mortgage financing. One can't help but be skeptical about a bank mortgage specialist with only one lender. It's like being a doctor with medicine from only one pharmaceutical company.

    For mortgages, the best mortgage is from an independent mortgage agent a large percentage of the time.

    If there was an independent mortgage sales office on every corner, the banks would be out of business. Many independent mortgage agents, can pick up other financial products very easily.

  • Victor Simone on 2015-04-16 5:48:01 PM

    If we are talking about just mortgage financing. One can't help but be skeptical about a bank mortgage specialist with only one lender. It's like being a doctor with medicine from only one pharmaceutical company.

    For mortgages, the best mortgage is from an independent mortgage agent a large percentage of the time.

    If there was an independent mortgage sales office on every corner, the banks would be out of business. Many independent mortgage agents, can pick up other financial products very easily.

  • Brian Lambert on 2015-04-16 6:01:38 PM

    @ Ron Butler: I respect your offer Ron. But the difference is you would be buying your clients where as the clients by me and my services. That's the whole point I was getting across. Having only one services is not impacting the client and it is not enough to have them coming back for more services and advice. We just finished RRSP season, it was another opportunity to do a financial check-up and that led to more referrals and mortgage refinancing. Hey, we've had this discussion before?

  • Ron Butler on 2015-04-16 6:10:42 PM

    Hey Brian, since you love your clients wouldn't you would naturally want to get them lower mortgage rates, free appraisal, better legal cost AND NO BROKERAGE FEES. After all, they love you, you love them, it would just be the right thing to do? No? They would want to pay you even a BIGGER FEE for the financial planning after they saved all the money with me.

  • Jim Thornton on 2015-04-16 6:11:02 PM

    @Ron +1

    Brian: Are you charging a fee for the whole plan, but just using the mortgage to fund that fee? Are you a CFP? If you are, then that fee is justified. If you are not, then, in my opinion you shouldn't be charging a fee. Or, are you charging a fee for arranging the mortgage? The previous broker was talking about charging a fee for just arranging a basic mortgage.

    This is the problem with this business. Lenders and brokers a like feel that just because there is money there they should get their hands on it. If you are charging a fee just because there is a huge savings for a client, then I would say that is not right.

    If you charge a fee, but are not compensated for the mortgage, then fine. But if your double dipping, then you can justify it anyway you want, it's not right. Your benefit is getting the sale.

    Here is the fact: We are in a business that can result in helping clients. Just because we save them money, doesn't entitle us to some of that money. That's why we are compensated for what we do. Because, of the work involved in doing it. The benefit to the client is they save money. The benefit to you is you are compensated for the sale and the work involved. Now... If there was an unusual amount of work involved, then maybe I could see adding a small fee, but in 12 years, I've never done that.

    Just because we can charge fees, does not mean we should. This business is quite lucrative. Why take more? You want more, find more clients!

  • Brian Lambert on 2015-04-16 6:48:23 PM

    @ Ron: The fee would be for the full package, it is economical for the client and all agree to put in with the mortgage refinancing in that scenario, if there is a refinancing involved. As you know you can find a lot of extra cash for a client in a refinancing. It is the allocation of the cash that makes these plans so effective. I recently gave up all my licenses on the investment and insurance side and the whole book of business transferred to my business partner of 22 years. She takes care of that side of the business and I focus on the mortgage side as it save's so much time. We work hand in hand with all clients and they know us equally, its a very balanced business. My point again is that a multi serviced business will bring in revenues from all sides, its finding that balance and partnership? Its what the clients need and want as their finances are scattered all over the place with multiple professionals at times working against each other. The banks are only an after thought as they do no justice or give any direction to the public. It is the mind set of developing a full service business. That is what solidifies the client and brings them back. The mortgage business is getting harder, the banks will do and say anything to lure back clients. CIBC I find lately as the worst with offers of Cash Back and low rates to get then to transfer back. I warn all clients of these schemes and because they have other business with us they call us when the banks tries to lure them in? By the way I never offer buy downs, never pay for lawyers and rarely pay for appraisals unless the client needs the help, and it is rare that even if the bank does try to offer the client a lower rate. they still stick with us, do to the educational training, advice and planning. It's a business model that works and have worked for many years. Why change it.

  • James on 2015-04-17 5:57:37 AM

    dentists = doctors right?

    first world problems.

  • Ron Butler on 2015-04-17 9:40:02 AM

    Brian, give me a few more years of advertising lower rates, free appraisals, subsidized legal fee and NO BROKERAGE FEES and I will change your model for you!

  • andrew on 2015-04-17 11:44:36 AM

    why is this even a story, brokers from different industries are not comparable and the skill sets required for both are completely different other than the sales acumen. Just saying.

  • andrew on 2015-04-17 11:44:38 AM

    why is this even a story, brokers from different industries are not comparable and the skill sets required for both are completely different other than the sales acumen. Just saying.

  • andrew on 2015-04-17 11:44:44 AM

    why is this even a story, brokers from different industries are not comparable and the skill sets required for both are completely different other than the sales acumen. Just saying.

  • Moose on 2015-04-17 12:17:56 PM

    @ Guy Lew, the very fact that you believe your clients will continue to earn a minimum of 25% a year is exactly why you should not be a financial advisor (or real estate investment advisor for that matter) stick to selling cheap debt. You've most likely placed a few deals riding the coat tails of an inflated market and the trend has been your friend. But come on do you really believe with incomes, gdp, etc flat you can say with a straight face you can extract that type of a return without taking on casino level risk? Mistaking your luck for skill is the first fault of a speculator that made a few good plays.

  • Moose on 2015-04-17 12:18:06 PM

    @ Guy Lew, the very fact that you believe your clients will continue to earn a minimum of 25% a year is exactly why you should not be a financial advisor (or real estate investment advisor for that matter) stick to selling cheap debt. You've most likely placed a few deals riding the coat tails of an inflated market and the trend has been your friend. But come on do you really believe with incomes, gdp, etc flat you can say with a straight face you can extract that type of a return without taking on casino level risk? Mistaking your luck for skill is the first fault of a speculator that made a few good plays.

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