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The CEO of one of Australia’s largest mortgage broking groups has warned that a ban on trail commissions, as outlined in the Productivity Commission report, would result in a consolidated lending base, reduced competition and higher prices.
David Bailey, CEO of AFG says that major banks would be the “unintended beneficiaries” of any move to ban trailing commissions for mortgage products.
“This is ironic given the tone of the majority of the final report. Consumers have been voting with their feet in greater numbers for over 20 years and increasingly use brokers for better service and less costly, better-suited home loans,” Bailey said.
“Mortgage brokers are encouraged through trailing commission to stay with customers for the life of their loan, to review products and add value. It is in the business interest of brokers to work for their clients through the years to help them continue to gain better finance outcomes as circumstances change.
“Banning the incentive to work with customers for longer durations would have a detrimental impact on the very services that brokers help provide – greater competition. The current structure is not broken. The removal of trail will simply hand more power to the major banks and non-major lenders and consumers will pay the price,” he continued.
Bailey also noted the recommendations stand in contrast to those made in ASIC’s Remuneration Review, which drew on extensive research to conclude that there is no reason to remove trail commissions.
AFG was one of a number of major industry players to provide the Productivity Commission with evidence of the savings brokers make for their customers through ongoing contact over the life of a loan.
“It is disappointing the Productivity Commission did not give sufficient weight to this evidence and we invite them again to spend time with some AFG brokers to understand the value a demonstrated level of contact with a customer can deliver.”
Bailey continued, “The ASIC Review was a significant piece of work spread over an 18-month time period and did not identify evidence that remuneration by commission led to detrimental outcomes for consumers. Our stance has always been that brokers add to a competitive industry working in the interests of consumers.”
He concluded, “We can’t afford to jettison 20 years of competitive experience without giving regard to the findings of other reviews and ensuring a stable, dynamic, customer focused lending environment remains.”
