Financial industry analyst Max Franchitto claims brokers must consider charging a fee-for-service, or risk looking like “mere sale reps for their favourite banks.”
He told Australian Broker Online the existing commission model was a perilous one, and the future may lie in brokers getting their bread and butter from a fee-for-service model instead.
“They should consider the history of financial advice, when in the life insurance and superannuation sector of the 80s and 90s they offered ‘free advice’ because they were getting paid by the product supplier,” he said.
“The banks are the suppliers; they will only continue to pay commissions if the distribution channel returns profitable business.
“Once this is not the case then they will reduce commissions or cut them off completely and rely on internal distribution channels.”
He said it was crucial for brokers to promote themselves as indispensable, and independent, sources of advice for borrowers.
“To remain an attractive advisory channel, brokers have to prove to both customers and product suppliers that they are truly independent and they are there to advise the client, hence they need to remove any possible interpretation of a conflict of interest (commissions and soft dollar incentives),” he concluded.