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An executive at a major lender has voiced his concerns over the Productivity Commission’s (PC’s) suggestion of the removal of trail commission.
The report into competition in the Australian financial system was released in the first half of August with 12 key overviews and recommendations covering competition, trail commission and the appointment of in-house Principal Integrity Officers (PIOs).
Trail commissions earned by mortgage brokers feature heavily in the findings.
The report states, “We ultimately consider it implausible that the industry as a whole is unaffected by the substantial incentives created by commission based remuneration. And…these incentives are overwhelmingly stacked in favour of the party paying for commissions — that is, the lender.”
Anthony Waldron, NAB executive general manager of broker partnerships, said the report was “very comprehensive” and there were some early questions. He added that the industry as a whole needed to take the time to read through it.
Speaking directly in response to the PC’s stance on trail commission, he said, “We believe that a trail commission makes the broker’s services affordable for customers.
“It creates a level playing field for competition for all lenders, small, large, regional, so we think trail allows brokers to place the customers in a loan that’s not unsuitable, but also that they need to provide ongoing service as well.
“So I guess the other risk that we would see if the model would change is there could be a risk for brokers to constantly take out new loans and it could have an unintended consequence down the track where it could encourage writing of new loans. We need to think through unintended consequences of such a change.”
