A top lawyer has warned that scrapping broker commissions and implementing a fee-for-service model would be a “disservice” to Australian borrowers.
Gadens partner Jon Denovan told The Adviser that regulators investigating brokers' remuneration must avoid the outcomes of the Future of Financial Advice (FOFA) reforms, which he believes disenfranchised the majority of Australians from seeking financial advice.
“Mark Bouris and Yellow Brick Road are making a sterling effort to try and provide financial advice in a cost- effective away, but they still have to charge to make a dollar,” Mr Denovan said.
“The rules and regulations are so extensive that it’s quite a big dollar. It would be a great disservice to the community if you had to pay to see a mortgage broker.”
Mr Denovan said ASIC has approached the review – which he expects will continue until the end of 2016 –with “no preconceptions and no bias”, adding that the regulator is well aware that there is a big difference between credit and financial advice.
However, he warned that brokers selling the wrong products for higher commissions will run into trouble.
“If they go in there and find that people are being sold the wrong product because of higher commissions then they have a problem. If there is a material number of people who are doing the wrong thing then we’re in trouble,” Mr Denovan said.
“But it doesn’t matter if you get more commission so long as the product is equal. Your in-house brand might give you a bigger commission, but as long as your in-house brand is appropriate for the customer, you can sell it till the cows come home.”
Mr Denovan said one danger for brokers is in the subprime mortgage space.
“It might be easy to be attracted by higher commissions paid by some non-prime lenders,” he said.
“But you should be seeking out a non-prime lender who is providing a good competitive product.”