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Mortgage Brokers Agitate Against Banning Of Trail Commission

Mortgage brokers are agitating about the government’s move to ‘call it a day’ for the trailing commissions from July 2020, saying this could lead the upfront commissions to rise in the interest rates.

The royal commission final report declared: “The chief value of trail commissions to the recipient, to put it bluntly, is that they are money for nothing”.

Mr. Kenneth Hayne (Commissioner of Royal Commission) also added to his report “Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?”

The government said it would not immediately adopt Kenneth Hayne’s call for upfront commissions to also be banned and be replaced by a customer-paid fee, which Labor indicated it would support.


Recommendations :

  • The home-loanborrower should pay the engaged mortgage broker instead of the lender.
  • Financial advertisement fee arrangements must be renewed annually by the client.
  • After being provided, in written, with the precise services being received and the total cost.
  • Changes to ensure a person has only one default superannuation account.
  • A new independent authority to oversee the prudential regulator, APRAASIC.
  • A ban on ‘hawking’ – the unsolicited offer or sale of superannuation.
  • Should be prohibited for both insurance and super products.
  • The referral to regulators of AMPComm BankNABand others.
  • This could lead to civil or criminal charges.

However Peter White, CEO of the Finance Brokers Association of Australia remarked – “We are certainly extremely disappointed with that outcome. A trailing commission is really a deferred upfront fee and is part of the legal agreement. The impact will be upfront commissions and interest rates going up.”

Mortgage & Finance Association of Australia chief executive Mike Felton said the government’s stance on trail is at odds with commentary from ASIC and Treasury. “The upfront fee would have to increase to compensate for loss of the trail.”

He also warned Labor from supporting the shift to the user-paid fee. “That would be a shock to the system. Even if banks have to charge a fee equivalent to the cost of doing a deal internally, as the report suggests, their marginal cost is lower than a broker due to economies of scale, so banks will inevitably undercut the brokers. This could end up forcing customers to bank branches and entrench the big bank power, while making it harder for customers to access credit.

Mortgage brokers currently settle 59 per cent of all mortgages in Australia.


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