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