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Trailing commissions for brokers could soon become extinct, The FBAA’s president Peter White has warned.
Speaking at an FBAA seminar on ‘How to survive the licensing process’ yesterday, Mr White said while trailing commissions might hang around for some time, the industry has already seen some lenders make reductions.
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“No other country pays trail commissions to brokers, so Australia is behind the eight ball in this respect,” Mr White told The Adviser.
Mr White said trail commissions were originally introduced for mortgage managers to assist them in the day-to-day management of loans. However, it wasn’t long before brokers jumped on the trail commission bandwagon.
“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,” he said.
“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,” he said.
“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.”
Despite Mr White's comments, the banks have been at pains to stress that commissions are not under threat.
Executive general manager of NAB Partnerships Matt Lawler told The Adviser last year that the bank would continue to pay trail commissions to its brokers, so long as they were transparent.
“We don’t make changes [to commissions] every couple of years. They are a once in a cycle change and we have no intentions of changing that,” Mr Lawler said.
Mr White said if brokers want to keep their trail commissions, they may have to start using the non-bank sector.
“Many non-banks offer trail commissions as well as no volume hurdles and no accreditation costs, so it pays for brokers to utilize this market sector,” he said.
“I highly recommend that brokers look to the non-bank sector as an alternative to the banks,” he said.
