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Industry split over fee-based future

Staff Reporter 5 minute read

Reduced commissions may accelerate the transition towards a fee-based structure for Australian brokers however regulation is the more likely driver.

Response to Mortgage Business’ latest straw poll revealed that 64 per cent of those surveyed agreed that commission reductions would prompt brokers to charge a fee for their services.

Fee-based broking is well established in overseas markets.

A straw poll conducted by Solution 4 – a UK software provider – this week revealed that of the 69 per cent of British brokers that charge their clients, 78 per cent said regulation was the main reason; 22 per cent highlighted market trends as the main motivator.

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Of those brokers that charge a fee, 39 per cent said that the credit crisis had impacted on their ability to do so.

“I believe Australia will move to a fee-based broking industry; not because of commission restructuring, but because of the time and cost associated with regulation,”said Michelle King, CEO of Solution 4 in Australia she said.

Ms King said that broker fees were introduced in the UK around the same time that the industry underwent regulation – a transition Australia faces later next year.

She expected Australia to move towards a fee-based model over the next 12 to 24 months.

Judith Fiander of Centric Lending Services agreed that there is a strong case for brokers to charge client fees but conceded that it will take time for consumers to adjust.

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“If clients are receiving good advice around planning, structures and investments they do not object to paying their financial advisor a fee... I think we will reach a point where the same is true for our industry,” she said.

This is a view shared by Alison Whittle from the Mortgage Detective.

“Brokers need to have an option where they can recoup some of their reduced income if they are providing a professional service to customers,” she said.

According to Ms Whittle customers often assume they would have to pay for the services of a broker – and would be happy to pay a fee for a service that they see value in.

Others however are less certain that the industry has the clout to demand fees from customers, particularly in light of the current economic slowdown.

“The major lenders are consolidating and the smaller lenders are getting swallowed up with some going out of business,” said Patrick Chidambaram, a Choice Home Loans broker.

He pointed out that the UK and US markets, which support fee-based broking, offer borrowers considerably more options from mainstream lenders and so there is a greater need for broker product advice.

“With the pool of lenders shrinking in Australia it is getting easier for customers to go and do their own research if necessary.

“Fee-based broking works in the US and UK because there are so many products and a much bigger pool of money available that a broker can actually save customers money by offering them a product that they might not have known about – in Australia that is not the case,” said Mr Chidambaram.

According to David Mortlock, principal with Mort Financial, brokers that charge their customers fees in the current environment will struggle to write business.

“I think the industry is under an enormous amount of pressure to survive – it’s absurd to think that we could charge a fee,” concluded Mr Mortlock.

Published: 26-06-08

Industry split over fee-based future
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