Banning trail commissions would have dire consequences on the mortgage broking industry, brokers have proclaimed, with some admitting they would consider leaving the sector.
Kim Hall, director of Smart & Simple Mortgage and Finance Consulting on NSW’s Central Coast, who attended the
FBAA National Tour yesterday, told
Australian Broker she is concerned by Steve Weston’s caution that trail commissions could be banned under ASIC’s remuneration review. Especially because she doesn’t believe upfront commission will be adjusted as a result.
“At present, broker remuneration is a mix of upfront commission and trail commission. Abolishing trail commission would essentially be a cut to total remuneration, as I don’t believe there is any proposal on the table to increase upfront commissions to compensate for the amount of trail that would be lost if it were banned,” Hall said.
“I think it’s fair to say that an overall cut to remuneration would be a concern for anyone regardless of which industry they’re in.”
Mardee Thomas, mortgage broker at 1st Street Home Loans in Sydney said axing trail commissions would have harmful effects on consumer outcomes.
“I think the biggest issue will be that it will promote mortgage churning, whereby brokers will move a client from one lender to another for the purpose of obtaining additional remuneration, with little-to-no regard for what is in the client’s best interests,” she told
Australian Broker.
But because of this, however, Thomas said she doesn’t believe ASIC will ban trail.
According to Hall, there is a false perception that trail commission is income for nothing.
“Unfortunately there is a perception that trail is money for nothing, it’s not, it’s deferred remuneration paid on a monthly basis for continuing to look after that client on an ongoing basis.
“Good brokers invest a lot into the ongoing client relationship, they are often at the client’s beck and call well after the loan settles, and they also invest a lot into their business to continually improve the client experience.”
Hall told
Australian Broker she would even consider leaving the industry if there were any drastic changes recommended by the review.
“Depending on the actual outcome of the review, exiting is a possibility if the numbers no longer stack up. But that’s the same as any industry; people do not stay in business if it’s no longer viable,” she said.
Thomas told
Australian Broker that she would consider adopting a fee-for-service model to remain in the industry.
“I definitely wouldn’t consider leaving the industry as I really enjoy what I do and work with a wonderful group of people, though I believe we would then have to implement a fee-for-service for our clients’ requirements regarding ongoing support.”
