Powered by MOMENTUM MEDIA
the adviser logo
Lender

Scrapping commissions will have 'massively negative impact'

by Emma Ryan4 minute read
Brett McKeon

The head of one of Australia’s largest aggregation groups has defended broker commissions amidst ASIC’s inquiry into remuneration structures in the third-party channel.

In a letter to 2,600 AFG brokers, AFG managing director Brett McKeon said he was “disappointed to read recent reports denigrating the use of commissions to remunerate mortgage brokers”, adding that AFG believes the current remuneration structure meets consumer demand.

“AFG has not seen any reports that use hard data to support these negative assertions,” Mr McKeon said.

“I have repeatedly made the point that brokers are required to disclose any commission and fee payments they may receive from the recommendation of a product.”

Advertisement
Advertisement

In the letter, Mr McKeon wrote about his displeasure with talk of eliminating upfront commission payments.

“Suggestions that there be a removal of an upfront commission payment will have a massively negative impact on the sector if enacted,” he said.

“Brokers would in effect derive no income for two years. This is not a sustainable model for employment.

“If this were to occur, ultimately new mortgage brokers into the market place would be limited as there would be a significant ramp up before regular income is generated.”

Mr McKeon added that he believes the suggested fee-for-service model will have a negative impact on both brokers and consumers.

“Under a fee-for-service model it is likely that potential customers will seek to avoid this payment by engaging directly with a mortgage vendor at the branch level, where no fee would be applicable,” he said.

“Real choice would be lost which is not in the interests of the consumer.

“Vertically integrated lenders with mortgage brokers who provide a service that is more akin to a sales force for their associated lender are unlikely to be affected by commission restrictions as the lender would likely absorb the ‘fee for service’ and switch their broker ‘sales force’ to salaried employees.”

In terms of consumer outcomes, Mr McKeon said he is reiterating that “consumers pay the same price, in most circumstances, for a broker-introduced loan as they would for direct-to-lender”, adding that brokers often negotiate a better result.

“There is a field in FLEX that highlights the advertised interest rate versus the actual interest rate for the loan,” he said.

“I would ask that you all use this field to enable us to provide hard evidence of the value the negotiating power of a broker can deliver to consumers.”

Mr McKeon's comments come after Assistant Treasurer Kelly O’Dwyer confirmed to The Adviser in November that she had written to ASIC requesting that it undertake the review to help determine the effect of current remuneration structures on consumer outcomes.

[Related: 'Brokers are educators, not salespeople']

brett mckeon  x

JOIN THE DISCUSSION

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

MORE FROM THE ADVISER

CEO Sleepout Pepper Money

Mortgage industry raises more than $160k in CEO Sleepout

On 23 June 2022, several CEOs and directors in the mortgage and finance industry spent a night without shelter to...

READ MORE
alex whitlock

New membership program revealed for The Adviser

Members will be able to access exclusive sales and marketing strategy, business intelligence and exclusive market...

READ MORE
Hot property TA

Hot Property: The biggest property headlines from the week 27 June to...

Welcome to The Adviser’s weekly round-up of the headline stories and news that are important not only for the...

READ MORE
magazine
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