One of the largest lenders in the Australian mortgage market has spoken out about the challenges brokers face as commissions come under the regulatory spotlight.
Speaking to The Adviser, ING Direct head of third-party distribution Mark Woolnough said broker remuneration and the digitisation of financial services will be key themes in 2016.
“Revitalising commission structures in the financial services space has been bandied about for some time in an effort to deliver fair value to customers,” Mr Woolnough said.
“We’ve seen efforts to get rid of commissions for financial planners through the introduction of FOFA regulations; and the insurance industry has attempted to self-regulate by implementing structural changes outlined in the FSC Trowbridge report,” he said.
“While it’s early days in Australia, change has been in progress in other jurisdictions for a while.”
Mr Woolnough noted that in the Netherlands, where ING Direct is headquartered, the regulator moved to reform remuneration of mortgage advisers in January 2013 and a fee-for-service model was introduced.
The challenge for brokers, he said, has been to shift their proposition to deliver real value for the customer, not just in terms of giving advice but also in aligning themselves with the lenders that deliver the most reliable service proposition.
“From a customer’s perspective, there is greater transparency – while the average fee is 1 per cent of the home loan, with a number of service propositions on offer, customers only pay for what they need,” Mr Woolnough said. “If they want a full service, they pay more, yet if they only require execution, then their fee for service is naturally reduced.”
Mr Woolnough said it may be too early to say whether this “natural evolution” will occur in the Australian broker market. “But as in the rest of financial services, it’s likely that discussion around remuneration structures will come to the fore soon enough,” he said.
Broker commissions have been in the spotlight after AFG managing director Brett McKeon wrote to 2,600 of the group’s brokers expressing his disappointment over reading reports that denigrated the use of commissions to remunerate mortgage brokers.
As ASIC’s investigation into broker remuneration continues, other industry leaders have speculated about possible outcomes.
Connective director Mark Haron said the ASIC review could push towards “something similar” recent remuneration reforms of the life insurance industry.