the adviser logo

Dalton says ‘flat fee’ model could hurt consumers

by James Mitchell5 minute read

Mortgage industry figure Kym Dalton has outlined a number of issues with the proposed flat-fee broker remuneration model, arguing that it "could be opaque" and vary from lender to lender.

In recent weeks a number of Australian consumer groups, such as CHOICE, have slammed lender-funded broker commissions. At least one group says that broker remuneration should mirror the Future of Financial Advice (FOFA) reforms and migrate to a borrower-paid fee-for-service model.

To continue reading the rest of this article, create a free account
Already have an account? Sign in

As consumer groups attempt to portray brokers as commission-hungry predators, Mr Dalton points out that competitive and regulatory pressures have seen upfront commissions and trails paid by “mainstream lenders” converge over time.

"They are reasonably homogenous these days," he said. This means that brokers have little or no incentive to "adverse stream" borrowers to loans that did not suit a consumer's needs and objectives as the broker chased higher commissions.


“The preliminary discussion about flat fees paid by lenders is very light on detail as to the metrics that would determine the size of scope of the lender-derived ‘flat fee.’”

Mr Dalton pointed to item 17 of the ABA-funded Sedgwick report, which states that an alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.

“At this point and elsewhere it says that the ‘flat fee’ (a de facto fee for service arrangement) must be paid by the lender – but it doesn’t say why,” Mr Dalton said.

“The report does say that banks, as soon as possible, should move to adopt ‘an alternative payment system’ for brokers – i.e., not commissions based on the size of the loan as a singular metric.”

Commenting on the ASIC review of mortgage broker remuneration, Mr Dalton said the document doesn’t actually come out and say that the current upfront and trail commission payment arrangements definitively produce poor consumer outcomes.

He believes it is quite possible that, “lenders being lenders,” the flat-fee proposals could become a new battleground for broker market share or “amend risk profiles, producing poor consumer outcomes by encouraging brokers to ‘adverse stream’ to the lender paying the highest flat fee.”

Critically, Mr Dalton says that the existing commission structures have become transparent over time, whereas a new remuneration model would be untested.

“It’s possible that the proposed flat-fee arrangements, particularly if accompanied by a complex set of metrics that determined the fee, could be opaque and with wide variance from lender to lender, impacting consumer outcomes and making it more difficult for ASIC to provide regulatory oversight that ensured sound consumer outcomes.”

[Related: AFG sets out vision for commission structure changes]

Dalton says ‘flat fee’ model could hurt consumers
TheAdviser logo

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.


You need to be a member to post comments. Register for free today


daniel tuttlebee resimac asset fInance ta l27zun

Resimac takes controlling stake in Sonder

Resimac Asset Finance has expanded its acquisition stake in equipment finance business Sonder Equipment Finance...

asic ta 2

ASIC seeks ‘common-sense solutions’ to breach reporting

The Australian Securities & Investments Commission (ASIC) has committed to “improving” the operation of the...

andrew mills homestart ta htfetw

HomeStart drops graduate loan deposit to 2%

HomeStart Finance, a non-bank lender backed by the South Australian state government, has lowered the deposit hurdle...

Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more