Friday, 28 October 2011

REFUND Home Loans closes. Hope your not one of them

Reward Home Loans entered voluntary administration Funny how their website is still up.

 source ABN
Margin squeeze, costs may have killed Refund
By Adam Smith | 20/10/2011 5:00:00 AM     

Commission refund models can only work with extremely low operating costs, a refund service has claimed.

Following the announcement that Refund Home Loans has entered voluntary administration, Refunds Direct managing director Strachan Taylor has told Australian BrokerNews a large franchise network operating on a commission refund model was fated to prove unviable.
"It comes down to a cost-revenue relationship. What we've seen is costs go up and revenues go down. A lot of these franchises were probably marginally profitable at best, and it wouldn't take much to tip them over," he commented.
Taylor pointed to banks squeezing commissions following the GFC, along with the increased compliance costs associated with the NCCP. He said these factors meant a refund model with high overheads would be difficult to maintain.
"For the value brokers deliver there's a cost, and that has to be covered," Taylor said.
In addition to this, Taylor echoed comments from Refund Home Loans communications consultant Peter Sawyer, who admitted the company fell victim to "over-exuberant growth".
"Refund saw phenomenal growth over a period of three or four years. Costs always lead and revenues always lag, so that would put a tremendous strain on the business, despite franchisees paying franchise fees," he remarked.
Taylor's business runs a no-advice referral service, with most customer interaction occurring online. He said this low operating cost allows the model to be viable. Though Taylor commented that the business would "quite categorically state that we're not brokers", he said he did not consider the business a source of competition for brokers.
"Yes, it's going to overlap slightly, but we think the market is big enough to handle both. Even in the heyday of the broker channel, half the market still wanted to go direct," Taylor said.
Related stories:
Refund failure should serve as warning
Refund model labelled 'unviable'
Franchisees could buy Refund        

             Commissions to continue for Refund

By Adam Smith | 19/10/2011 9:15:00 AM | 3 comments Share on LinkedIn
Commission payments to Refund Home Loans will continue as usual, but the future of franchisees' trail books is in doubt.
The company announced last week it would enter voluntary administration, telling Australian BrokerNews it was unable to finance debt amassed during its expansion. Choice CEO Stephen Moore has now said the aggregator will continue to pay commissions as usual to Refund.
“I can confirm that Choice will continue to meet its obligations with Refund when it comes to the payment of commissions,” he commented.
While Choice will continue paying commissions to Refund, Moore said the payment of commissions to individual franchisees falls to Refund Home Loans.
“The relationship on paying commissions to Refund franchisees is Refund’s responsibility, so we have no say over that. We’ve certainly encouraged the administrators to continue to support the franchisees,” he said.
Moore confirmed the group's trail books are owned by Refund rather than Choice, and hence are at the mercy of administrators. With this in mind, Moore said Choice had actively advocated for Refund brokers with the administrator.
“We’ve been in contact with the administrator and made our thoughts known that our primary concern is with the individual Refund brokers. The company has a significant number of brokers, and in this distressing period a number of them are quite concerned,” he said.
Though Moore could not speculate on the administrator’s plans for the Refund business, he said the administrator’s public position was that it would look for buyers for Refund rather than liquidating the company’s assets.
“The administrator’s stated position is to look for a buyer to sell the business to as a going concern,” Moore said.
Choice has been in contact with Refund franchisees, Moore added, and would continue to provide them with aggregation services.