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An Australian third-party stalwart, now working in the UK, has revealed how a lack of trail commissions for British brokers has led to greater diversification.
Former NAB general manager of broker platforms, Steve Weston, who relinquished the role in 2012 to take up a position at Barclays in the UK, says British brokers have mastered the art of diversification.
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“Cross selling a broader range of products including life and general illness forms a larger part of their business,” Mr Weston told The Adviser’s sister publication Mortgage Business.
“These products pay commissions for both origination and renewals,” he said.
“If Australian aggregators wanted to look at one thing that UK aggregators have done I would suggest it is the way in which they have diversified their income streams.”
While trail commissions are non-existent in the UK, brokers benefit from more regular upfront payments due to different market dynamics.
According to Mr Weston, the popularity of fixed-rate mortgages means brokers receive upfront payments approximately every two years.
“Upfront commissions – known as procurement fees – average 0.35 per cent with a variance of +/- 0.05 per cent,” he said.
“To understand the economics of intermediary sourced business you need to understand the difference between a mortgage and a product in the UK,” he told The Adviser’s sister publication Mortgage Business.
Customers will take a mortgage for a 25- or 30-year term; the most popular product options currently are two-year fixed rates, he said
“At the end of the product term the customer rate typically reverts to a higher rate until the customer chooses a new product – referred to colloquially as a ‘rate switch’ – with their existing lender or refinances to another lender,” Mr Weston said.
“Some lenders pay the broker a fee for completing the rate switch or the broker will be paid a procurement fee by the new lender for a refinance,” he said.
[Related: Banks speak out against fee-for-service]
