Productivity Commission chairman Peter Harris said at the commission’s hearing yesterday that a fixed broker fee is perhaps a better proposition than commission. He raised the subject of fee in discussing how to design a duty of care for brokers.
Harris reiterated the commission’s proposal that a duty of care be imposed on brokers belonging to bank-owned brokerages. The commission had said earlier that it would prefer this route to regulation.
Calling the assertion that consumers do not pay for broker service as counter-intuitive, Harris asked ANZ representatives, including CEO Shayne Elliott, who pays their brokers and who should expect to get something in return for that payment.
ANZ was among those that spoke on the last day of public hearings.
Elliott said that in a sense, consumers pay for everything the bank does. He also agreed that imposing a duty of care is not unreasonable.
“I imagine that a lot of people think a broker does have a duty of care to them,” he said, but added that it is important to ask consumers what they think.
Harris stressed that with consumers actually paying for broking services, it is reasonable that they expect service to be provided to them and that brokers act in their best interest.
At the same time he said there seems to be less resistance now to the notion that imposing a duty of care is reasonable.
“You know we’ve recommended imposing a duty of care on bank-owned brokerages, but we’ve heard at the hearings to the effect that some independent brokers don’t mind if duty of care was imposed on them as well.”
Harris said the issue now is possibly more a question of the proposal’s design.
“I have the impression that perhaps a fee is a better proposition. The question might be: should it be paid by the consumer, or should it still be paid by the bank?”
When asked by Harris if there is a movement into a fee-based structure in the market, Elliott said a commission-based structure is more aligned to banks’ interests.
“There is a merit in looking at a fee-based structure, but the reality is today, in a highly competitive market that is taking us down, having a commission-based structure is an understandable logic,” said Elliott.
“Given there’s an alignment between commission and revenue, and with volume obviously driving revenue for the banks, there’s an alignment of interest there. But I think there’s a merit in looking at a fee-based structure.”
Elliott said he did not think the shift to a fee-based structure would evolve naturally.
“That will require some intervention, either as an industry or through regulation.”