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Brokers shouldn’t rely on increased commissions to improve their profitability, according to the head of a leading aggregation group.
At a time when many are predicting increased commissions, Ballast’s Frank Paratore warned brokers to look for profits elsewhere rather than just relying on the banks to hand them out.
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Speaking to The Adviser, Mr Paratore said increasing profit margins and record results don’t necessarily mean lenders should be paying brokers more.
“When you talk to the banks, they say that for their size and infrastructure they are not as profitable as some of the other global businesses operating. They say they need to be more streamlined and they think their return needs to be even better,” he said.
“Brokers need to understand that the banks stood very firm through what was the GFC, and if it wasn’t for that, the brokers would not have had too much of a proposition anyway.”
Brokers should be looking for other ways to make money if they want to survive in the long-term, he added, noting they should ready themselves for all possibilities in the future.
“If finance does become a bit tighter, or in the event banks do cut commissions, how are brokers going to survive?” Mr Paratore asked, but suggested that "diversification" was the answer.
“There are two choices: either write significantly more business or start providing multiple services to the one customer to make up some of that money,” he said
Australian brokers already receive generous commissions compared to their counterparts overseas, according to Peter White, chief executive of the Finance Brokers Association of Australia (FBAA).
Mr White told The Adviser that while he personally believes brokers should be paid more, current commissions in Australia are already generous compared to world rates. Brokers in the UK are “lucky” if they get 0.3 per cent up front and no trail.
“I’m not saying that brokers should be paid less or be paid more; I’m saying that in a global environment, we’re alright,” Mr White said.
“I think there’s a reality in the fact that we were in a heated market prior to the GFC. Everyone took a quip through the GFC and the reality is that today this is what is commercially viable to pay a broker.”
A bank operates to provide profit for its shareholders and whatever they pay brokers will be commercially driven, Mr White said.
“Lenders are always looking for the next increase in profit to appease their shareholders. So it’s shareholder-driven rather than commercially driven to the broker who is doing half the work for them,” he said.
