Trail commissions are doomed and upfront commissions are also a lost cause.
For now, the mortgage broking sector in revelling in the government’s announcement yesterday afternoon that is “has decided to not prohibit trail commissions on new loans, but rather review their operation in three years’ time.”
“They’re backing down on a major reform they committed to just a few weeks ago,” Clare O'Neill, the shadow minister for financial services said on Twitter.
In a speech to the Committee for Sydney (previewed by the Financial Review) O'Neill confirmed Labor would hesitate on the most drastic recommendation of the recent banking royal commission – that the borrower, not the lender, pay upfront fees to mortgage brokers.
Instead, O’Neill said Labor would limit the upfront fees to 1.1 per cent of the draw down component of the loan.
More than likely, a new Labor government would be drawn to the findings of last year’s study by the Productivity Commission and its final report into financial services.
Trail commissions "should be banned”, the Peter Harris-chaired PC panel said.
“We remain unconvinced that trail commissions serve any such purposes,” the PC report insisted.
“The evidence is not there, certainly not from the banks that pay the commissions, nor from the brokers’ associations.
“It is most likely that a traditional form of remuneration common in the 1990s, when brokers emerged as a competitive force, has simply persisted long after it has been found detrimental to consumers in other financial product markets.”