Clawbacks exclusive to Australian broker market

by Miklos Bolza03 Apr 2017
A new global research report by the Finance Brokers Association of Australia (FBAA) has found that remuneration in the Australian broker market is unusual for a number of key reasons.

“We’re the only country in the world that has clawbacks,” FBAA director Peter White told Australian Broker. “How can banks in Australia say that clawbacks have got to stay when they don’t because no one else in the world bloody well has them?”

While clawbacks do exist in the USA, this is not a contracted arrangement, he said. Instead, clawbacks exist under an ad hoc model with no legal structure behind it.

The FBAA’s research also found that brokers in Australia are some of the lowest paid in the world. While local brokers received an average remuneration of 0.65% upfront and 0.15% trail, the global average (excluding Australia) had upfront at 1.26% and trail at 0.20%.

The study looked at remuneration structures in Australia, Canada, Holland, New Zealand, South Africa, the UK and the USA.

Holland was the only country researched where brokers were paid a flat fee for service.

“They used to have a commission-based model and then it got changed by regulation,” White said. “They’re very unhappy with the outcomes and they’re trying to see what they can do to change it again.”

The added effect for this is that the final amount charged is much higher with a “host of added on services” being promoted by the broker over in Holland, he added.

“Where there’s no trail involved – the outcomes are questionable. In some cases, they’re ok. In other countries they’re not and they can potentially create the wrong outcome for the borrower.

“So there are extra products being pushed onto them, there are high levels of churn – all these sorts of things happen in different markets because of these situations.”

Countries without trail include Canada, South Africa, the USA and the UK, the research found. However, White said that Canada was actually about to bring trail back into the regulatory structure.

“Canada is actually paying around 20 basis points in trail in some cases. New Zealand is also bringing trail back in.”

Where trail is paid, there are no negative outcomes at all, White said.

Related stories:

Aggregator slams ABA Review's "ludicrous" broker findings

MFAA pushes for balanced, fair & equitable commission structure

“It’s not like commission is a dirty word”: FBAA

COMMENTS

  • by CP 3/04/2017 8:41:21 AM

    NZ does have claw back liability ranging up to 27 months depending on the bank. Not all banks pay trail. Upfront on average without trail is .85%. Upfront with trail (.20%) is between .45-.60%

  • by DW 3/04/2017 9:27:05 AM

    I'll agree to the concept of clawback when bank employees start having their wages clawed back up to 24mths after a loan settles when a branch submitted borrower decides to sell the property or jump ship to another bank.

  • by Regional broker 3/04/2017 9:39:14 AM

    The most essential thing that needs to happen during the public submission and consultations process the MFAA, The FBAA and the major broking firms ALL need to bring up the issue of unjust claw backs which basically were started by the Majors, and most other lenders followed suit.
    The interesting question is will the MFAA back their broker members on this issue , as the Bank owned aggregators obviously will not !!

    Great work by the FBAA , it may be time to look at my MFAA membership and join the FBAA instead as they have the brokers interest forst and foremost , comments from the MFAA on this issue of clawback would appreciated in coming issues of Australian Broker.