With the banking Royal Commission in full swing one of the big questions being asked in the mortgage industry right now is should consumers pay service fees to brokers?
The idea is that if customers paid brokers directly it would eliminate the potential for any conflicts of interest, which can occur under the current system where brokers get paid commissions and trail by the lenders for their service.
We all know good brokers are worth their weight in gold for consumers looking to get the best deal and loan for their needs and they need to be paid somehow for their expertise.
But would consumers be happy to pay their service fees out of their own pocket?
The Productivity Commission has examined this question in its draft report into competition in the Australian financial system and in a public hearing Bendigo Bank and Adelaide Bank are on board with the idea.
Travis Crouch is a divisional CFO for revenue at both banks and told the hearing this week that they think a fee-for-service brokerage would remove any conflicts of interest but admitted it would have ‘significant and varied implications which will need to be carefully considered’.
Mr Crouch said it would be brave of banks to not participate in the broker market given around half of Australians use a broker when taking out a mortgage.
Connective director Mark Haron disagrees and has in the past told The Adviser that if brokers charged a fee for service it would hurt non-major banks and non-banks that need brokers for business.
Mr Haron says such a system would decrease competition in our country’s financial system and could make financial advice less accessible to those that need it most, for example, first-home buyers.
“Brokers are doing the work that the banks would have to do themselves, so it’s only fair that the brokers get remunerated by the banks,” he told The Adviser.
The best result for all parties is to continue to look into the payment for broker system in depth to work out what is the best system for customers.