Compensation Remuneration or fees claimed from the client by the broker

Brokers may ask their clients to pay them money for the services they provide (e.g., a fixed amount or a percentage of the loan amount). This money is called “compensation” in the regulations.

This may occur in all kinds of situations, the most frequent being when a broker asks a client to pay them for services in the event the client refuses without justification to accept the financing proposed by the mortgage broker.

It may also occur when a lender does not pay a commission to a mortgage broker who has proposed its loan, something that often happens with alternative or private loans.

Whatever the situation and reason, if a broker asks a client to pay them compensation for the services they perform, there are very specific rules governing the practice.

A mortgage broker cannot prevent a client from cancelling their contract without charge (or any other consequence) before the broker’s services have been rendered.

Depending on the client’s situation, the correct recommendation may be to not incur a loan. It is also possible that no loan will be suited to the client’s situation.

In either case, the broker must not place their personal interests (e.g., receiving a payment) ahead of the interests of the client This link will open in a new window; the broker must make the recommendation that is suited to the client’s situation and needs even if it means not receiving any remuneration.

The AMF processes numerous complaints from clients from whom  compensation is being claimed by mortgage brokers.

The clients say that they did not consent to it or that they did not agree to the claimed amount and find it unreasonably high for the services they received.

Most of these complaints could have been avoided had the mortgage broker clearly explained the compensation claimed from the client and the conditions under which it was being claimed.

A broker may not claim compensation from a client after services are rendered if the compensation was not clearly explained and agreed to by the client at the outset, before services were rendered.

At the outset of the relationship: written disclosures and clear explanations

A broker who plans to claim compensation from a client must disclose the compensation in writing before the client agrees to retain their services. In addition, a broker must provide the client with the explanations needed This link will open in a new window to understand their remuneration. The explanations must be sufficiently clear and suited to the client’s level of understanding, and the broker must ensure the client’s understanding is accurate.

For example, it might be a good practice for a broker, after explaining everything and making sure the explanations have been properly understood by the client, to ask the client to initial the corresponding written disclosures or sign a statement that the information has been disclosed to  and understood by them.

A client’s signing a written disclosure does not exempt the broker from explaining the content of the disclosure to the client. In other words, a written disclosure is not a substitute for the explanations of the broker. The broker must provide the client with a copy of the written disclosure, if applicable, for future reference.

Explanation of the compensation amount

The amount claimed from the client by the broker must be fair and reasonable given the services rendered This link will open in a new window. In other words, the amount claimed must be commensurate with the service provided. The client must not pay an amount that exceeds the value of the service received.

Here is a partial list of factors to be considered in justifying the compensation amount claimed:

  • Broker’s experience
  • Time and effort spent on the file
  • The fact that the broker receives no other remuneration
  • Level of difficulty of the file
  • Etc.
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Important reminder

The disclosures and explanations provided must be noted in the client record This link will open in a new window. In particular, to properly document their actions, a broker must keep in the client record a copy of the documents given to the client. They must also record the explanations given to the client, particularly regarding the nature and scope of their services and their remuneration.

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References