Are broker commissions under threat?

by BN28 Apr 2010

After yesterday's announcement by the government that the payment of commissions to financial advisers is coming under threat some are asking whether mortgage brokers will be next.

The Federal minister for financial services Chris Bowen yesterday announced that commission paid to financial advisers would be phased out until 2012 in order to ensure that consumers do not receive bad advice so that the adviser would receive more money.

“As ASIC found in 2006, poor financial advice is six times more likely where commissions are paid in order to get various recommendations made,” he said, adding that a similar initiative is taking place in the UK.

Financial advisers will have to use an ‘adviser charging regime’. This will be agreed between the client and the adviser upfront and the adviser will be paid either on hourly fees or fees as a percentage of funds under management.

While this is clearly aimed at financial advisers and not mortgage brokers, there are concerns that the same logic could be applied to the commission structure that brokers receive. Bowen sought to reassure brokers that there income is not under threat via these reforms.

“There's a different regime that applies to mortgage broking and that applies through our national credit reforms,” he said. “Mortgage broking is quite different to the issues that we're talking about here today but they are regulated through the national credit reforms.”

Do you think it is possible that the government may one day ban broker commissions? Would the broking industry have a future if commissions were removed from the equation?

COMMENTS

  • by David Turnbull 28/04/2010 9:44:19 AM

    Why would the government ban broker commissions when there is an economic cost to the lender to attract and settle new business and the client pays no extra. Also the upfront commission is only just adequate and difference between lenders is negligible. I own a Refund Home Loans franchise and we sign an agreement with our clients and show them exactly what we get paid by our whole panel. It is above reproach and the consumers love it. Do the right thing by the main stakeholder, yes the client and we should have no reason to worry about Government change. The Majors are another story!

  • by Bob 28/04/2010 9:45:17 AM

    I can''t see why mortgage brokers should be permitted to be paid a commission from a product provider and have commissions for the life of the loan when most of you do nothi g after the sale. The additional cost to first home buyers would drop proportionatly if this was outlawed.

    Why can''t mortgage brokers charge a fee for service rather than flogging a banks products? Its all the same, its just another financial service and should be regulated as an AFSL Product

  • by Pardon Me broker 28/04/2010 9:51:26 AM

    Please everyone get off the band wagon and stop making ill informed comments or come out and say who you are!!!!! Please recognise that the services we as FINANCE BROKERS provide is completly DIFFERENT to what a financial planner does and the services they provide.
    We arrange loans that meet a client borrowing needs and requirements basically at the same cost at what it would cost for the client to apply to a bank directly assuming that the broker DOES NOT charge an up front fee , which they should not be if they are half way professional brokers).

    Planners and receive a commission for RECOMMENDING INVESTMENT products and placing those investments, The up front commissions will be paid by the investment company from the clients investment to the planner as an up front fee and from on going earnings of the investment as a ''Trailer" it really costs the client actual money.

    The difference is plain to see and I believe that Nick Sherry and Chris Bowen both understand that and from the ASIC seminars I have been to recently they appear to understand the difference.