Standardising commissions unlikely to work in practice, says broker

by Julia Corderoy10 Dec 2015
A standardised commission structure for mortgage brokers is good in theory but is unlikely to work in practice, according to one Sydney-based broker.

Alex Stephen, director of Specialist Lending Group in Sydney’s North Shore, told Australian Broker that there is no doubt that commissions can influence some brokers.

“Overall, I don’t see an issue with standardised commissions across the board. I have seen some clients that have been placed into products of smaller funders who do provide higher commissions in order to attract brokers with a detrimental interest rate being delivered to a customer. So it does happen. There is no dispute about that.”

However, Stephen says implementing a ‘one size fits all’ approach would get rid of competition and disadvantage the majority brokers who are offering an honest and consumer-focussed service. 

“I think it may lead to some degree of collusion [between banks]. When banks are given a reason to talk to each other then they will collude and try and push the pricing down as far as brokers are concerned. 

“And it will be government sponsored because they will all be saying they had to talk to each other because the government said they need to standardise. If they all collude then decide to reduce their upfronts to 40 basis points, then companies like mine who do the right thing and have a number of support staff and analysts and post-sale client managers will be penalised because we will have less income to support those staff.”

According to Stephen, a more realistic solution would be to raise the education standards in the mortgage broking industry.

“I think it is mainly a symptom of the fact that broking is a relatively easy industry to enter with low education hurdles. This then allows someone who doesn’t have a large client base or the ability to generate a large client base to have a number of clients who they continuously churn through to try and put them into expensive products or continually move lenders all the time,” he told Australian Broker.

“The biggest problem with our industry is the low-entry level.”

In a recent online poll conducted by Australian Broker, 60% of brokers said commission strucutres in mortgage broking should not be standardised, while 40% said they should.
 

COMMENTS

  • by Anna-Louise Brown 10/12/2015 9:08:35 AM

    When writing a loan I have no idea what commission is payable until I have selected the appropriate product and have to input commissions into compliance documents.

    Therefore, personally, standardising commission makes no difference to me.

    However, I totally agree that banks would jump on the opportunity to reduce commissions and therefore we need the current system. Perhaps a declaration in the compliance documents of what is an average commission (published each month by the MFAA say) and stating whether the recommended product is below or above this and the reasons why it has been chosen when it is above.

  • by Dave Robinson 10/12/2015 9:21:06 AM

    Wow wish I had the ability to read other people with little or no input from them: “Overall, I don’t see an issue with standardised commissions across the board. I have seen some clients that have been placed into products of smaller funders who do provide higher commissions in order to attract brokers with a detrimental interest rate being delivered to a customer. So it does happen. There is no dispute about that.”

    It couldn't be because there is no channel conflict, that the smaller lender provided a more personalised service to the client and broker, that the smaller lender would look outside of credit scoring, no it was all commission related... Oh if only I had that crystal ball!

  • by Macarthur Broker 10/12/2015 11:05:24 AM

    Excellent comment Anna-Louise. How about we flip this around and go full fee for service. Would we all have to charge the same fee? Doesn't make sense does it? I just wish regulators would stop meddling with an industry that is NOT BROKEN.