Brokers have rejected a call from a professional services giant to give up “conflicted remuneration” commissions in favour of fee-for-service.
EY, formerly known as Ernst & Young, told the federal government’s Financial System Inquiry that the MFAA, FBAA and NCCP have made the industry more professional and transparent.
However, EY said such standards “do not equate to the introduction of best interest tests, conflict priority rules or conflicted remuneration provisions” that apply to financial planners.
EY said although it would be wrong to push for identical regulations in broking and planning, both industries should be free of conflicts of interest.
One solution would be to introduce “significantly improved disclosure arrangements around business model drivers”, according to EY.
“It may also extend to ensuring greater consistency or realignment of pricing and remuneration structures, including with respect to upfront commissions, ongoing trails and volume bonus arrangements,” the submission said.
“A fee-for-service requirement, whereby payments are made directly from the customer to the broker, as opposed from the product manufacturer, would largely mitigate this conflict.”
Custom Equity Group managing director Sean O'Brien told The Adviser there is nothing unethical about commissions as long as they are fully and appropriately disclosed.
“Upfront commission is a fair payment for the broker placing the business with a lender whilst the trailing commission is a payment for maintaining the ongoing needs of the client,” he said.
“As long as the lender offers the same product and features at the same price through all of its distribution channels then the customer is not negatively impacted by utilising the services of a broker, and as such there is no conflict with lenders paying commissions.”
Helpful Home Loans owner Darren Bajada said it was wrong to call commissions a form of “conflicted remuneration” because brokers make decisions based on their clients’ best interests.
He also said it would be unhelpful for the industry to promote a fee-for-service model because that could encourage lenders to lower or abolish commissions.
Pass Go Home Loans owner Jamie Moore said he had considered introducing fee-for-service in the past, but added that most brokers would probably find it difficult to successfully implement.
“I think high-performing brokers with a value proposition that doesn’t just involve shopping for the cheapest rate might be able to do okay because they’re offering something more and doing complex structures for investors and mapping out plans for people’s financial future,” he said.
“But I don’t think many brokers would prosper because consumers are conditioned not to pay anything for brokers.”