Final report "a rude awakening for brokers"

by Brett Henebery11 Feb 2019

The Baking Royal Commission findings could lead to an exodus of brokers from the industry, warns one prominent SME advocate.

Neil Slonim, from theBankDoctor.org, told Australian Broker that the recommendations handed down by Royal Commissioner Kenneth Hayne on Monday afternoon were a “rude awakening” for brokers, many of whom were left blindsided by the report.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg are poised to accept almost all the report’s 76 recommendations, which includes removing trail commissions for brokers from 1 July 2020.

Slonim said the shift to a borrower pays system has “huge implications for a sector already in turmoil”. 

“There are compelling arguments on either side, but bankers need brokers just as much as brokers need bankers,” Slonim said.

“If there are fewer brokers around, potential borrowers will go directly to the banks, but the banks are not sufficiently resourced to handle that level of inquiry.”

Slonim said this would lead to more potential borrowers not being able to access funds.

“It would take more time to get decisions, and that wouldn’t be good for anyone,” he said, adding this could force potential borrowers into the hands of less scrupulous and unregulated lenders.

Another concern that Slonim highlighted was how Australian consumers might react to being charged a fee for a service they previously got for free.

“Whether the bank pays the broker commission or whether the borrower pays fee for service to the broker, the customer ends up paying anyway,” Slonim said.

“Whilst previously borrowers haven’t been too concerned about trails and upfronts that banks pay to brokers, the reality is that banks build those fees into their overall pricing. 

“One way or another, the borrower pays anyway. Perhaps it’s better if the borrower knows exactly what they’re paying and to whom, and what they’re getting for it.”

Slonim said this is also a major change for the brokers who previously haven’t had to be accountable to borrowers for what they’ve earnt.

“There are many brokers who are now considering whether they should stay in the business. There are many people who became brokers over the last few decades because it was a relatively easy way of making a lot of money, particularly during a housing boom and commissions and trails were paid on value,” he said.

“So, this has been a very rude awakening for the broker community, and it will be difficult for them to digest these recommendations.”