Banks under pressure to shift to fee-for-service model for mortgage brokers


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His check-up on implementation since then said banks had made “substantial progress” in sorting out other problems, such as removing sales targets for tellers, but there had been “mixed” progress when it came to mortgage brokers.

Brokers, who arrange about 60 per cent of all new home loans, receive about 0.5 per cent of a loan’s value when it is drawn down, plus about 0.15 per cent a year over the life of the loan. This model appears certain to change, however.

The royal commission called for a radical overhaul, recommending customers instead pay an up-front fee — though the Coalition is cautious about a fee-for-service model, and Labor has said it will not back the change.

Amid the debate, Mr Sedgwick has now reiterated his support for moving to a fee-for-service model.

Australian Banking Association chief executive Anna Bligh acknowledged Mr Sedgwick had observed a “lack of action” on broker pay.Credit:Lucas Jarvis

In the report, Mr Sedgwick said banks should work with regulators to move towards a fee-for-service model “that preserves the viability of the third party channel but links payments to the effort expended in securing the loan for the customer rather than the value of the loan secured”.

Mr Sedgwick also said the “the longevity of current trail commissions is difficult to justify,” but some form of deferred pay for brokers helped to align the interests of customers, brokers and banks.

Both Labor and the Coalition have already said they will axe trail commissions.

The chief executive of the Australian Banking Association, Anna Bligh, acknowledged Mr Sedgwick had observed a “lack of action” on broker pay, but pointed out he had also noted the high level of complexity in the area, and the potential for regulatory action.

Beyond the issue of broker pay, Mr Sedgwick said the “clear and positive” trend was that the industry was on track to implement his recommendations for retail bank staff pay by 2020.

“The implementation of changes to secure consistently each bank’s desired sales practices and culture are ongoing,” Mr Sedgwick said.

Clancy Yeates is a business reporter.

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