More than half of the brokerages operating in Australia would fail without trail commissions, according to a former aggregation boss.
Following the release of the Sedgwick Review and in light of ASIC’s ongoing review of broker remuneration, Jeff Zulman of Book Buyers Brokerage claims there is a danger in trying to fix something that isn’t broken.
Mr Zulman, who served as CEO of Vow Financial between 2009 and 2010, has been helping brokers buy and sell trail books for the last five years.
“We assess five to 10 mortgage brokerage businesses a week, every week. If it wasn’t for the trail commission, more than half of these people would not be in business unless there was an alternative,” he told The Adviser.
“As soon as they go out of business, what do you tell all those lenders that don’t have a branch on every corner? You will get an even worse concentration of business with the big four. Brokers are the channel for alternative funders to find their way into the market and to keep some kind of competitive tension in the market.”
The interim Sedgwick Review, which was commissioned by the Australian Bankers’ Association, noted that some Australian banks rely heavily on brokers for key components of their business, maintaining only a limited branch network, and that mortgage brokers contribute a substantial part of the new mortgage activity of even the largest banks.
“The costs incurred by third parties in providing these services need to be met (either by banks – perhaps on a fee for service basis since banks avoid incurring substantial costs that would otherwise accrue to them – or by customers through fees for advice),” it said.
An MFAA commissioned Deloitte report into customer experiences of using mortgage brokers, released in November last year, found that 63 per cent of broker customers would be prepared to consider a fee for service.
Of those, 23 per cent said they would pay a fee for service between $1,000-$2,000, 22 per cent would be willing to pay up to $500 and 18 per cent would pay between $500 and $1,000.
However, according to Mr Zulman, those who often need the help the most have the least ability to afford it.
“First home buyers, immigrants, people on low incomes. If something ain’t broke, don’t fix it. I don’t see anything broken at the moment,” he said.
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