the adviser logo

Industry advocating for new upfront structure

by Annie Kane11 minute read
Industry advocating for new upfront structure

Aggregators and broker group heads have said they are on the front foot and working to try and raise the upfront commission for brokers – and potentially have it paid over several years – ahead of next year’s ban on trail commission.

Following the release of the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Treasurer Josh Frydenberg said that the government would look to ban trail commissions for new loans from July 2020.

The move, along with the recommendation by Commissioner Hayne for the broking industry to potentially move from a lender-paid commission model to a consumer-pays model, has been met with widespread surprise, shock and dismay from the broking industry.

Many aggregators and industry representatives have voiced their anger and frustration that the final report made such radical changes – but have tentatively welcomed the Treasurer’s measured response and comments relating to the impacts of moving to a consumer-pays model.


While the banking royal commission has suggested wide-scale change to the broker remuneration model, several representatives from the broking industry have already noted that work is now underway to carve out a new upfront commission standard.

Speaking to The Adviser, Connective director Mark Haron said that the aggregator did not believe that lender-paid commissions should be removed and that it would be “fighting tooth and nail to ensure that the commission structure stays as intact as it can”.

However, he said he thought it was “going to be challenging to retain trail commissions given the government stance on it”.

Mr Haron noted that the Treasurer “indicated through his response that he does understand the importance of mortgage broker to competition that brokers provide both from an interest rate level but also improving access to credit”.

“His reaction to the implementation of changes to upfront commission and  giving the industry three years with no change to upfront is a small positive; that gives us something to work with,” he said.

The Connective director elaborated that the aggregator has already been working with lenders this week to try and establish what would happen to upfront commissions given the current government’s decision to ban trail from next year.

He said: “In my discussion with lenders this week, there are indications that there are banks willing to move – to a reasonable extent – the trail commission value into the upfront commission so that brokers are not significantly worse off (in terms of the overall commission payment) with that change to trail.

“The challenge there lies in ensuring that we, as an industry, clearly disclose the commissions. It is important that we get those things right so that in three years’ time (the time frame given by the current government to reviewing the commission model) we are able to maintain those upfront commissions and not move to a customer-paid fee for service, which would be disastrous for consumers and for our industry.”

Likewise, Loan Market chairman Sam White said: “The assumption I always made was that, if trail does go, upfront would need to increase. And my thinking was always if they get to 1.15 or 1.2 per cent upfront, then I’d be happy with that.

“Losing trail in itself is not so much the problem, it’s more understanding what happens with upfront,” he said.

Mr White continued: “If we move to 1.1 per cent, perhaps lenders could give us half now and half over three or four years, which effectively operates as trail for three or four years on the basis that the customers can still pay their mortgage,” he suggested.

“So, it’s not so much about focusing on trail going, it’s much more about the structure of where the upfront moving forward. And that’s what we don’t know yet.”

Find out more about what the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry means for the broking industry, and what the next steps are, by attending the Better Business Summit 2019.

Running across five different states every Thursday from 14 February, the Better Business Summit provides brokers with straight-talking, practical advice to help them grow and improve their businesses in this time of change.

Tickets are selling out – so make sure you secure your ticket today to stay ahead of the curve and prepare your business.

[Related: Association heads slam ‘damaging’ RC final report]

sam white
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