The CEO of a non-bank lender believes trail commissions could be scrapped as a result of ASIC’s remuneration review, leading to the consolidation of mortgage aggregators and brokerages.
Speaking to The Adviser, Mortgage House chief executive Ken Sayer said commissions have been touted to be under risk for many years, but now, with only a few months left until ASIC presents its remuneration review to the federal government, he believes the days of brokers earning a trail commission could be numbered.
“If I were to guess, I would say trail is under the guillotine,” he said.
“About three years before the GFC, there were many Australian non-banks going to the US, and they have the same model over there – you only get an upfront commission, no trail. The only time you are paid a trail is if you service the loan and deal with the customers.
“If trend is your friend we will more likely head in that direction, the banks and lenders and non-bank mortgage providers will then get closer to the client the day after the loan advances. There will be no middle man. I cannot see any bad in it. I can only see upside and a more kosher business model.”
While he admits that a broking industry without trail will be difficult to adjust to, particularly for new entrants, Mr Sayer said the third-party channel has proven its resilience over the years.
“Every time regulation changes and compliance standards are raised, every time income per transaction is reduced, I find the broking community is very resilient; they adapt and adopt very quickly,” he said.
“What I think will happen is the aggregator groups and larger broker groups will have to start merging or joining forces to benefit from scale and reduce increasing costs.”
Mr Sayer says the removal of trail commissions would ultimately benefit the industry by forcing aggregators to “morph into more efficient organisations”.
“I get the feeling that they are investing in technology already, they are investing in deal flow and systems already, which will give them that little edge that they need,” he said.
Trail Homes founder Nick Young recently acknowledged the industry’s fear that an ASIC inquiry may trigger an overhaul of the current upfront and trail commission structure, replacing it with a fee-for-service model similar to what has occurred in the financial planning industry.
According to Mr Young, if this was to occur, it would inevitably result in “the erosion of choice” for Australian consumers.
“This will create confusion at best. In real terms, it’s a loss. It will cause major disruption to a stable distribution network that will undoubtedly have a profoundly negative affect on consumers and the mortgage industry alike,” he said.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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