Broker urges investment over trailer fees

by |

The issue of trailer fees is once again sparking debate among brokers as they look to secure their financial futures in very insecure times.

“Counting on other people to give you the money when you retire is unreliable,” says Angela Wong-Liao, an industry veteran and Invis agent. “There are so many new lenders out there, offering trailer fees; but why do we put our future in someone else’s hands?’”

On Thursday, MortgageBrokerNews.ca broke the story that controlling interest in Merix Financial had been sold to Culpeper Capital Partners. The sale will keep the current management in place, including the company`s long-standing support of trailer fees.

Still, a recent case of a credit union slow to honour renewal fees has ignited some concern about mononline included its sister firm Paradigm Quest, the industry’s leading mortgage servicing company.

The popularity of trailer fees among brokers is that it serves as a retirement fund for them, paying out commissions over many years and allowing for a more steady stream of income, say proponents.

For small lenders, it allows them to conduct business with brokers without paying all funds upfront and to minimize the threat of switching. Still some brokers making note of a lending landscape in a state of flux are recommiting themselves to upfront commission.

“I do my own investing, I get my money upfront,” says Wong-Liao. “They market trailer fees as helping you look after your retirement – but how many of these small lenders will still be around 20 or 30 years from now?”  

Other lenders who have left the channel, like Macquarie Financial, continue to issue trailer fee commissions to brokers. However, some cite the B.C. example of Northern Savings Credit Union, which discontinued its trailer fees back in 2010, only reinstating them after a public outcry in the brokering community.

“I only deal with the big lenders,” says Wong-Liao. “The smaller ones get bought by the larger lenders, even ING was taken over by Scotia."




 

  • Ivan in Toronto on 2013-03-05 5:30:59 AM

    She makes a good point....

  • Brian on 2013-03-05 5:35:09 AM

    Really? What advisor uses trailers as a retirement fund? Any that do should not be advisors, that is very poor planning.

  • Terry on 2013-03-05 5:39:15 AM

    Funny, I had the very comment in mind. You think we need to deal with the Monolines, however, everytime you turn around, these monolines are being purchased by the 5 big banks. The Monolines are not dependable.

  • Layth Matthews, CEO RateMiser Mortgage Advisors on 2013-03-05 6:05:45 AM

    Angela Wong-Liao brings up the critical point. She's right, it is dangerous to think of trailers as a retirement strategy. However, the trailer fee model redeems itself much sooner than that. If you do the math, most trailer fee models break even or better within 3 to 5 years. So it is a bit of a risk, but not that big. A little more income stability, helps shift the focus more on investment and less on rent. We need CAAMP to set some fair guidelines and highlight key terms in trailer agreements to protect the members. Also, what are the obligations of brokers to agents who don't last? RateMiser is going flat fee all the way. With minimal Admin fees at retirement.
    Policy makers should like the trailer model too because it reduces the incentive for spurious refinancing.

  • Jason Dodd on 2013-03-05 9:14:46 AM

    Why doesn't Angela go work for a big bank then? If we are going there anyway pull your chute and make your way there already. We will keep advocating choice in the marketplace. If we throw in the towel and don't support home grown industry choices consumers suffer in the end. Limited choice will alter the pricing in the marketplace. Careful what you wish for and you might get your job at the bank paying you 25-35 bps on each deal and a smaller volume bonus.

  • Bonnie on 2013-03-06 2:09:13 AM

    I don't think we should think of Trailer Fees as a retirement plan. However, considering the number of clients that we have that don't refinance in the first 5 years and don't want to be hassled by provided the necessary documentation to switch a mortgage, it does give us some income if they just sign the renewal agreement for another term with that lender.

  • Easy Decision on 2013-03-06 3:27:01 AM

    I don't understand the concern. With most trailer lenders paying full pop up front what is the problem? I still plan on staying in touch and servicing my client throughout their term so if trailer lenders change their stance or if they are no longer the best fit, then I still have a chance to move them if it serves my client's best interest. With industry figures showing 75% of clients staying with their lender at renewal why would I take that unnecessary risk if I don't have to? Maybe the trailer lenders decide to stop paying out one day…fine, now I am in the exact same position as I would have been with a non-trailer lender. There are contracts in place with trailer lenders and any change in policy would likely only apply to new originations moving forward. Relying on them for retirement is dumb but using them as a form of free insurance at renewal…why not?

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions