PC considers broker fee versus commission

by Manuelita Contreras06 Mar 2018

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.”

 

Related stories:
 

COMMENTS

  • by Get Interested 7/03/2018 8:42:49 AM

    A fee based structure is ridiculous and who's interest will this serve? Not the broker as a client will go straight to a lender or Bank to get their new loan or mortgage and this will cut the broker out of the equation.
    I think the productivity commission needs to keep their nose out of something they know nothing about and to change the current structure of remuneration will once again only benefit the banks and lenders and not the customer. The smaller lenders will also lose out as clients go straight to a major or larger lender to avoid paying a fee to a broker.
    Who are the productivity commission actually working for, the big banks?

  • by WA Broker 7/03/2018 10:12:19 AM

    A complete Joke - The ANZ CEO is advocating what is in the best interest of his bank (reducing payments made to the broker increases the banks bottom line) yet the PC commissioner doesn't raise this as it doesn't fall into his preferred narrative.

    What a complete hatchet job on our industry. Someone should explain to the PC commissioner what it is like to operate a small business in a highly competitive and constantly changing environment, while always putting your clients first and at the same time be subject to continuous threats to your livelyhood (ASIC rem Review, Sedgewick report, PC report, Royal Commission).

    I have faith in those that advocate for our industry, but it would appea the powers that be who simply don't want to listen.

  • by JITESH RANIGA 7/03/2018 10:15:35 AM

    I would say is first put the cost figures up for review for Broker originated Loans and direct Branch and Mobile Lender Originated Loan?
    This would be comparing apples to apples. I feel broker originated cost have to be less as the bank only pays when the deal settles and there is clawback for loan as well. This is double dip for the banks, which they have been enjoying over the years.
    I would say on average a $350,000-00, which pays .55% upfront and .11% trail and if the loan says with the lender for 8 years than direct cost to the brokers is appox $52-00 per month for 8 years on pro rate basis. on the other hand I would say the senior lender will be paid $52-00 per hour rate.
    I don't feel by the changing broker remuneration will give Direct benefit to consumers via a lower rate. I would say there would be more cost to the bank to facilitate this extra volumes more stores and staff which are the 2 big major expenses of any business wages and rent?
    if anything to maintain the cost margins the cost will go up and this will be passed to the consumers and RBA and ASIC will not be able to anything when banks will independently raise the rates or do not pass the rate cuts as in the past.
    lets try to understand the the commission cuts in GFC time where the broker commission were reduced and banks are still making huge and bigger profits? Did the consumer gain anything out of the commission cuts? Banks did reverse the commission back once the crises were over but keeping the profits for their own use.