Scrapping commissions will have 'massively negative impact'

Brett McKeon Brett McKeon
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The head of one of Australia’s largest aggregation groups has defended broker commissions amidst ASIC’s inquiry into remuneration structures in the third-party channel.

In a letter to 2,600 AFG brokers, AFG managing director Brett McKeon said he was “disappointed to read recent reports denigrating the use of commissions to remunerate mortgage brokers”, adding that AFG believes the current remuneration structure meets consumer demand.

“AFG has not seen any reports that use hard data to support these negative assertions,” Mr McKeon said.

“I have repeatedly made the point that brokers are required to disclose any commission and fee payments they may receive from the recommendation of a product.”

In the letter, Mr McKeon wrote about his displeasure with talk of eliminating upfront commission payments.

“Suggestions that there be a removal of an upfront commission payment will have a massively negative impact on the sector if enacted,” he said.

“Brokers would in effect derive no income for two years. This is not a sustainable model for employment.

“If this were to occur, ultimately new mortgage brokers into the market place would be limited as there would be a significant ramp up before regular income is generated.”

Mr McKeon added that he believes the suggested fee-for-service model will have a negative impact on both brokers and consumers.

“Under a fee-for-service model 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,” he said.

“Real choice would be lost which is not in the interests of the consumer.

“Vertically integrated lenders with mortgage brokers who provide a service that is more akin to a sales force for their associated lender are unlikely to be affected by commission restrictions as the lender would likely absorb the ‘fee for service’ and switch their broker ‘sales force’ to salaried employees.”

In terms of consumer outcomes, Mr McKeon said he is reiterating that “consumers pay the same price, in most circumstances, for a broker-introduced loan as they would for direct-to-lender”, adding that brokers often negotiate a better result.

“There is a field in FLEX that highlights the advertised interest rate versus the actual interest rate for the loan,” he said.

“I would ask that you all use this field to enable us to provide hard evidence of the value the negotiating power of a broker can deliver to consumers.”

Mr McKeon's comments come after Assistant Treasurer Kelly O’Dwyer confirmed to The Adviser in November that she had written to ASIC requesting that it undertake the review to help determine the effect of current remuneration structures on consumer outcomes.

[Related: 'Brokers are educators, not salespeople']

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