Australian Property News
Brokers’ trailing commissions under threat
Posted on Friday, February 12 2010 at 2:51 PM
Trailing commissions that lenders pay to brokers could be on the way out, Finance Brokers Association of Australia president Peter White.
A trailing commission is essentially a percentage-based sales commission that's paid for as long as the customer continues to hold the loan.
White has told industry publication The Adviser that some lenders have already reduced their trailing commissions to brokers.
"No other country pays trail commissions to brokers, so Australia is behind the eight ball in this respect," White told The Adviser.
"Discussions about broker trail commissions have been going on for years; and cracks in broker trail commissions are already starting to appear, due to growth in the broker market."
"Some of the banks are already putting the wheels in motion to stop trail payments. A number of banks have told brokers that they will not pay trail commissions for the first year, and will only pay a percentage in the second year."
"Brokers now are in a 'buyer beware' position when it comes to dealing with the banks, and unless they are doing more than merely introducing loans there is a risk that trail commissions may disappear from the broker channel."
However, members of the banking industry dismissed White’s suggestion that trailing commissions might be on the way out.
Citibank's head of distribution and marketing, Peter Hayward, told The Adviser he couldn't see commission structures being changed in the short term.
Brendan O'Donnell, chief executive of Choice Aggregation Services, says banks and non-banks alike remain committed to the broker channel for lending.
"The broker market is maturing rapidly and becoming a truly professional industry supported by a strong tail wind in the form of licensing," he told The Adviser.
"Banks and non-banks will continue to support brokers who focus on building the client relationship rather than those that are solely focused on providing a transaction – which is one of the reasons why trail commissions will continue into the future."
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