Powered by MOMENTUM MEDIA
Powered by MOMENTUM MEDIA
SUBSCRIBE TO OUR NEWSLETTER SIGN UP
Powered by MOMENTUM MEDIA

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

Opinion: Commissions are great for consumers

money red money red
James Mitchell 3 minute read

The recent case of a Sydney home seller stung by a fixed-fee model proves why commissions are a tried and tested way of delivering good consumer outcomes.

This weekend, the Australian Financial Review ran a story about a Sydney mother who hired a Purplebricks real estate agent to sell her Como home. The property failed to sell, leaving her with a $12,000 bill. According to the AFR, the debt is now being handled by peer-to-peer lender RateSetter, as the vendor chose to defer payment until the end of her campaign.

Purplebricks considers itself a disruptor and is one of the largest real estate agents in the UK. The listed company entered the Australian market late last year and has been marketing its flat-fee model to Aussies across TV and radio.

Vendors typically pay a flat fee of around $5,000, plus more for any extras tacked onto their campaign. This is in contrast to the traditional commission-only model used by real estate agents, who take a 2 per cent to 3 per cent cut of the total sale price.

The bottom line is this: commissions drive results. The agent is incentivised to sell the property for the highest price. If they fail to sell it, they fail to get paid.

Advertisement
Advertisement

In finance, "commission" became a dirty word somewhere between the GFC and the Future of Financial Advice (FOFA) reforms, which have since overhauled the financial advice industry. Regulation was the natural reaction to the financial crisis and has intensified in the last decade.

Now mortgage brokers are being targeted and the mainstream media has had a field day trying to vilify those who are remunerated by their product providers, rather than their consumers.

But brokers only get paid once they provide an outcome for their customers. If a customer had to fork out a few thousand dollars before a broker hit the tools, the outcome could be very different. I’d hate to think what type of dodgy operators the industry would attract if a fee-for-service model was enforced.

Anyone who believes mortgage broking should follow the FOFA reforms and move to a borrower-paid fee-for-service model needs to reconsider what they are actually proposing. They should also consider the impact FOFA has had on those who really need financial advice but can’t afford it.

Commissions have worked for years and they continue to work. Paying an upfront fee doesn’t guarantee an outcome, as the recent Purplebricks case proves. Earning a commission in real estate and mortgage broking is intrinsically linked with an outcome for the customer — the house is sold or the home loan settles. The customer gets a result. Period.

Given that mortgage broking, like real estate, is largely a referral business, it is in the interest of the broker to provide the best possible outcome for their clients. To do any different would be seriously damaging to their reputation and hinder any future referrals.

Customers are the best marketers of any business. They have the power to promote brands and to damage them. Social media is proving a highly effective weapon in this regard.

As the government prepares to hand down its verdict on the future of mortgage broker remuneration, it may be worth talking to the customers who actually use brokers. That’s always a good starting point when trying to identify good customer outcomes.

Opinion: Commissions are great for consumers
money red
TheAdviser logo
money red
James Mitchell

James Mitchell

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.

 

FROM THE WEB
more from the adviser
Aussie store ta Aussie calls for prescription in best interests duty

The broking franchise group has called on Treasury to introduce p...

asic ta 1 Disclosure ‘not the silver bullet’ for consumer protection

ASIC has released a new report into the effectiveness of financia...

ME bank 850 ME joins uno’s lender panel

The non-major has joined an online mortgage broker’s lender pan...