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Brokers have defended commissions after Australia’s assistant treasurer said they might not be in clients’ best interests.
Arthur Sinodinos told ABC television this week that although commission-based remuneration and fee for service were both legitimate business models, commissions could create a “conflict of interest”.
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All the brokers contacted by The Adviser insisted they never made recommendations based on commission rates and that they didn’t know anyone in the industry who did.
All Coast Home Loans & Finance owner Greg Crellin said clients’ interests were not threatened by the commission system.
“With the NCCP, we have to complete a needs analysis and we have to show why we are giving clients particular options, regardless of the commission,” he said.
“If it was found out that it was just on the basis of commission, you wouldn’t last long in the industry.”
Century 21 Home Loans’ chief executive, James Green, said clients were voting with their feet by turning to brokers in increasing numbers.
“Every time a customer is shown a product, we have to do a comparison with six other lenders and disclose our remuneration, and that is very different to other financial service industries,” he told The Adviser.
Astro Solutions owner Gunawan Samahita said commissions were the last thing he considered when helping clients.
However, he said the industry would benefit from switching to a fee-for-service model because it would remove any perception about conflicts of interest.
“It would untangle us from the notion that we may be influenced by the bank’s level of commission. Fee-for-service would perhaps make us more neutral and unbiased.”
Wealthmaker Financial Services chief executive Michael McAlary said both models were valid.
“The more important issue in terms of receiving a commission is for a client to understand the ownership structure of the broker – that is, are they independent or ultimately owned by a bank?” he said.
“If the broker is owned by a bank and sells a product of that bank, [then] despite the ‘not unsuitable’ test it is a conflicted remuneration situation.”
