The royal commission’s call for a review into broker remuneration in three years’ time is “absolutely unacceptable” and “has to go”, the head of the FBAA has said.
Managing director of the Finance Brokers Association of Australia (FBAA) Peter White has renewed his call for the scrapping of the Treasury-led review of broker remuneration arrangements in 2022 to explore the potential for a borrower-pays model, as suggested by commissioner Kenneth Hayne in the final report of the banking royal commission.
Both the Coalition government and Labor opposition have agreed to hold the Treasury-led review, but neither have committed to adopting a borrower-pays model, with the Coalition supporting the status quo, and Labor proposing a fixed upfront commission capped at 1.1 per cent.
However, Mr White has said that the review would prolong the uncertainty over broker remuneration and undermine the confidence of thousands of small businesses.
“Brokers have been living under a question mark over the future of their remuneration since 2014, when the Financial Systems Inquiry was launched,” he told The Adviser.
“If we’ve got a three-year kick-out from now, that would be about eight and a quarter years where brokers have had a question mark over the future of their income.
“That’s absolutely unacceptable.”
The FBAA head has been actively campaigning for the review’s scrapping, adding that policymakers have been sympathetic to his concerns.
However, Mr White does not expect any policy revisions until after the upcoming federal election.
“Nobody can do anything until after the election; everybody’s just spinning their wheels in the mud at the moment,” he continued.
“But that three-year kick-out has got to go. That parameter has to go.
“We have been and will continue to campaign very strongly against that.”
Deferred upfronts another name for trail
Mr White also weighted in on discussions concerning the potential for a deferred-upfront remuneration model as a compromise to Labor’s policy proposal, should they win government.
Under such a model, upfront commission would be split and paid over a period of up to five years as a way to reduce churn and incentivise ongoing service for borrowers.
“In my mind, if you split an upfront and pay it over any period of time, you’re then creating trail by another name,” Mr White said.
The deferred-upfront model was recently touted by ME Bank CEO Jamie McPhee, and flagged as a potential compromise by executive chairman of Loan Market Sam White, who reiterated his support for the current model.
The Loan Market chairman sought to draw a distinction between trailing commissions and a deferred-upfront model.
“I think it’s a lot more than a rebrand,” he told The Adviser.
“What I think the Labor team wants to do is make sure there’s no lender-choice conflict around how a broker gets paid. That’s why they want to have a consistent fee.
“The other thing is that if you have a consistent fee with some of it deferred overtime, it makes it quantifiable as opposed to a trail for life, which some people aren’t sure what looks like or represents.”
However, the FBAA’s Peter White raised concerns over funding challenges associated with a larger upfront fee paid over fewer years.
“It’s actually something that I’m in discussions about with some international corporates, regarding how a larger upfront could be funded and what that might look like,” Mr White said.
“That is the single biggest challenge.”
Mr White also questioned whether a deferred-upfront model would be politically viable because of its resemblance to trailing commissions.
“I doubt that the deferred-upfront model would get accepted at this point in time,” he said.
“But we know what politicians are like, they may change their minds on things, so it’s a valid discussion.
He added: “If you’re going to [introduce a deferred-upfront model], you might as well just stick with what we’ve got now, which is what the Coalition has done.”
The FBAA head concluded by encouraging brokers to continue promoting the broker proposition as they campaign ahead of the federal election.