AFG warns Murray against scrapping commissions

In a letter to Mr Murray obtained by The Adviser, AFG states that the removal of broker commissions would have serious ramifications for the broader lending market.

"Despite the fact that commissions are already disclosed with complete transparency, some submissions to the FSI are seeking to undermine the broking model under the alleged banner of 'transparency' by proposing the abolition of the commissions-based broking model in favour of a fee-based model," the submission said.

"The proposal being promoted by some interests would result in mortgage customers being required to pay a direct fee for mortgage broking services," it said.

"Under such a scheme it is likely that potential customers will seek to avoid this payment by engaging directly with a mortgage vendor at the branch level, where no fee would be applicable."

AFG argued that corralling mortgage customers into bank branch networks will have an "extremely detrimental impact" on Australia's remaining second-tier lending institutions.

"The loss of the broker-based distribution network would put these lenders at a major disadvantage to the large banks," the submission stated.

"The resources required to establish a physical branch network to compete with the large banks creates an almost impassable barrier to entry."

By undermining the broking model, proposals before the FSI advocating the removal of commissions would ultimately result in a significant reduction in competition in the mortgage sector, to the detriment of the consumer, AFG argued.

"Every mortgage customer will pay for reduced competition throughout the life of their loan."

AFG warned Mr Murray not to overlook the seriousness of the issue for the third-party industry.

"With thousands of brokers across the country, and around a further 60,000 jobs tied to the industry, the consequences should not be underestimated."

[Related: AFG posts record monthly volumes]