Fee-for-service alternative gains traction

“Clients generally understand the reasons behind it,” Mr Upcroft told The Adviser.

Rather than charge a fee for service, Mr Upcroft said he wanted a model he could sell to his clients that would protect his business from unfair losses.

“We introduced a quasi-model of fee for service, whereby we have an initial commitment fee, which is $500 plus GST, and the way it works is we refund it to the client once we’ve written the loan for them,” he explained.

“When we get paid our commission, we will refund their $550 fee to them. However, if they don’t go through to settlement or use another provider or a bank, then they don’t get their fee refunded. It's about the time and effort that we have put in - we are offering a service and we should be paid."

Charging a fee when others are not isn’t easy to do, but by employing a refundable commitment fee, Mr Upcroft said it makes it much easier to convince clients.

“We sell it on our service, providing the client with a key understanding of what we’ll do for them in the process, how we will handle their file, and the lengths we will go to," he said.

"We need to understand that our effort will be rewarded and clients understand that.”

Tim Brown, CEO of VOW Financial, agrees a better alternative to the fee-for-service model is a commitment fee.

Mr Brown said he thinks commitment fees are an appropriate safeguard, ensuring a fair outcome for both consumers and brokers.

“It’s totally appropriate to charge an application fee to get them to commit to you," he said.

“That way, if they don’t proceed and you’ve done work, then you still receive appropriate payment for the work you have done.

“What I have an issue with is if you charge a fee and collect a commission - for me that’s not appropriate,” said Mr Brown.

Mark Haron, CEO of Connective, said brokers don't need to offer the refund if they market their fees as a ‘fee for advice’ rather than a ‘fee for service’. 

“We are seeing brokers having success when they are labelling it a fee for advice.

“They explain to the client that the fee they are charging is around the advice that they give in terms of helping them to select the lender and product,” he said.

According to Mr Haron, the commission paid by the bank isn’t then a double payment but rather a payment for organising the loan.

“The bank is then paying a commission to the broker for the work that they are undertaking on behalf of the bank,” he said.

Many brokers, including Troy Phillips from Mortgage Asset Services, believe this model is still too difficult to sell to potential customers.

“While it may seem like the only way to go forward for the industry, it’s too difficult to commercialise it right now,” said Mr Phillips.

Mr Phillips does charge a fee to his clients but said to do so he needed to offer something different.

“My business implemented a Finance Fit Program, which has an annual fee.

“To make it more attractive, I put together education seminars and events. If you have something additional to offer them, like having lawyers and other various industry speakers attend, then it becomes more viable,” he said.