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The future of trail commissions is a concern, says industry veteran

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Julia Corderoy | 15 Jun 2016, 04:07 PM Agree 0
The mortgage broking sector in Australia should be concerned about the future of trail commissions as a part of ASIC’s remuneration review, an industry veteran has told brokers
  • MMR | 15 Jun 2016, 04:28 PM Agree 0
    Welcome back Steve Weston!
    Why did we ever think we would be immune to this global movement away from trail? As I understand it there are 3 countries in the world that have trail - Australia, NZ and Canada - and the rate of trail paid in Australia far exceeds that in the other nations. If trail is scrapped in Australia brokers will need to evolve their business models - just like newspapers, book stores, tax accountants, financial planners, taxis and other rationalising industries. It will be a sad day IF trail goes; we need to fight for it but we also need a plan B.
  • Broke Broker | 15 Jun 2016, 04:34 PM Agree 0
    Why fix something if it's not broken? We know Banks Retail banking channel has remuneration issues with bonuses and incentives that have been abused including fraud with sales Statistics - having worked with a major for many years. Broker Churn was a concern in early days however is not a major concern now I believe. No doubt there is some element of fraud/crime as in any industry - that's why we have ASIC, APRA + ACCC etc to protect clients not dictate broker remuneration unless it was fundamentally corrupt. Clients overall get a great service and most often better rate and loan structure. Brokers mostly work hard, show dedication with after hours and weekend work, incur many expense in running a business, compliance etc and paying their fair share of Tax. Banks win with new clients and cross sales generated from brokers. It is a cheaper distribution model for Bank's So why would we need to follow international markets and perhaps an unfair model when our system is overall working efficiently and everyone wins ? ASIC and Government would need to prove to us, the Banks and the Public that there is a substantially better incentive system for us to continue to work in this Industry
  • Tim H | 16 Jun 2016, 01:04 PM Agree 0
    Trailing commissions are paid to brokers as an incentive for the broker to assist the client with future transactions on their loan accounts. They also in the case of NAB broker and a few other lenders encourage longevity with the particular lender due to the increasing trail the longer the loan is with the lender. These outcomes provide the following benefits to the client, lender and broker.
    - The broker maintains contact with the client and becomes their go to person for changes to their loan/s creating stability of a contact person who knows the clients financial background. Too often with lenders, staff changes create a level of concern for clients.
    - The changes including guidance on changing a bank account for direct debits, converting a loan from variable to fixed, partial discharge due to the sale of a property, assistance with dealing with the lender when financial hardship exists, small increases etc are better managed by the broker. As they deal with these every day this results in less worry and stress for the client and an easier processing procedure for the lender making the change more streamlined.
    - Lenders are more likely to work with the broker to retain a client. if a client is happy with their lender and the lenders' time managing the client is minimal then everyone is benefiting. Client gets better deals, lenders costs of managing the client are minimal and the broker earns an income for his time.
    - Finally broker churn which benefits the broker is reduced. If a brokers' only means of earning an income was upfronts then there would be a driving force to re-write loans regularly rather than work to get a better outcome from the borrowers' existing lender.

    The area of concern I do have with remunerations is the benefits aggregators get from lenders in the form of volume bonuses, special events/ trips for the aggregator heads and sponsorships etc of events in return for perceived bias for a particular lender. Over the years I have heard of situations where an aggregator may earn a bonus commission payment if a certain volume of loans is settled. The aggregator then pushes that particular lender to their brokers. We see regularly where a lender that sponsors a particular aggregator gets more airtime than one that doesn't offer sponsorship. Some may call this marketing but when the lender with the biggest marketing budget gets more airtime with an aggregator than a lender that has a better product one has to question who the aggregator is working for and what value they are adding.

    I am an "Industry Veteran" having commenced working in the mortgage industry in 1979. I have been broking for the past 19 years and have seen many changes come and go as well as many good and not so good people come and go. Australias' mortgage industry and mortgage broking in particular is not the damaged article some are saying. Sure there are people in this industry like in just about any you want to name that are bad eggs but in my time talking with many brokers it is plain that the vast majority want to do the right thing by the client and be paid a fair income for this. I trust ASIC come to this conclusion also in this review and leave the remuneration system as is and continue to work with lenders, aggregators, FBAA, MFAA and brokers to maintain a high standard for all.

  • Broker Advocate | 16 Jun 2016, 01:41 PM Agree 0
    The UK is different to the Australian market - firstly, the Mortgage Market Review placed a far greater onus on lenders to assess the suitability of products for borrowers whereas, in Australia, this function is largely carried out by brokers. UK brokers therefore have a smaller role in the process and can therefore cope with a much greater volume of clients. This puts the quantum of commissions into context. Secondly, many UK lenders have intermediary-only subsidiaries which offer loans that are much cheaper than those offered by the branches- have a look at Yorkshire Bank and its subsidiary Accord. If the intermediary lender is not offering a lower rate, it will be offering lower fees, free valuations and/or cash back. Finally, the rate differential between two-year fixed and five-year fixed rates over there is so great that brokers would be negligent if they were not encouraging their clients to fix for only two years. The question should be "why are branch-based advisors not encouraging their clients to fix for two years at 2.09% as opposed to fixing for five years at 2.99%?". Do the maths and you'll see that the comparison rates over the fixed period are much lower for the shorter term.
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