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One broker says standardising commissions will help address the ongoing channel conflict between lenders and loan writers.
Financial Elements director Jaison Singh said one of the main issues the industry is currently facing is the amount of brokers providing a product to a client based on price as opposed to servicing their needs.
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“Brokers disclose a lot of their commission structures, but what you will find is that when they’re finding a product to suit a client’s needs, a significant number won’t necessarily go towards one that will pay them less,” he told The Adviser.
“Standardising commissions will stop this from happening 100 per cent, because what you’ll find is a lot of lenders might offer a higher incentive to sway brokers to use their products, but if the product is suited to the client’s needs – irrespective of the commission – you’ll get paid the same amount anyway.”
Mr Singh said standardising commissions will also go a long way in improving the ethics and professionalism of mortgage broking. He went on to question the independence of brokers.
“We position ourselves as an independent voice to our clients, but is this completely true? If two lenders offer identical products, we can discuss lender service levels as a point of difference, but the other factor we don’t ordinarily discuss is the amount we would earn from each.
“It’s only human nature to take it into account; unfortunately this also means that our advice is not completely independent. Standardising commissions across all lenders could be a way of achieving this.”
Mr Singh said a lot of lenders are shooting themselves in the foot at the moment in regards to pricing by making everything transactional and not valuing the true service they can achieve.
“They’re not focused on the structuring of the product for the client – they’re basing a lot more of their decisions now on pricing. What that’s doing is putting clients in the wrong products,” he said.
[Related: Broker strategy sees bank lift commissions]
