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Sovereign shakes up structures on commission

Leading non-bank lender Sovereign has dramatically reorganised its commission structure for brokers, axing trail commission payments on new business for those who do not produce a certain amount of income from cross-selling of insurance.

Thursday, October 23rd 2008, 3:24PM

by Maria Scott

Adam Heath, general manager of Sovereign Home Loans told Good Returns, “It is a function of the international credit crunch, or crisis we are going through.”

From November 20 the company, part of the ASB Group, will pay upfront commission only on new business from individual advisers who produce less than $2,000 a year in annual premium income from cross-selling Sovereign insurance products, and groups that produce less than $30,000 a year.

The insurance premium income can come from business written by brokers themselves or referred by them. This group of advisers will no longer be able to offer a high value interest rate discount to clients.

Two other commission categories have been created. Top-producing brokers, categorised as “supporting advisers”, who produce at least $5,000 a year in premium income individually, or groups producing $30,000 or more will continue to receive trail commission on new business and existing business and will be able to offer discounts of 10 basis points on interest rates on all new loans regardless of size. This discount replaces the discount that was available only on loans of more than $275,000.

Brokers who are working towards increasing their income from insurance but who currently produce between $2,000 and $5,000 of annual premium income and groups that produce less than $30,000 will receive the same deal as “supporting advisers” while they are working towards targets.

Sovereign said that the changes will affect only a minority of the advisers it works with. Trail commission is available to supporting and developing advisers on new and existing business, and while servicing advisers will not have the option to receive trail commission on new business, it will still be paid on existing business.

“A high proportion of advisers we work with will be supporting advisers or at least developing advisers,” Heath said.

Sovereign’s commission changes follow two announcements in recent weeks about changes to lending criteria including the lender’s decision to pull out of the low-documentation market.

The lender’s latest move is likely to come as a blow to brokers who have seen trail commissions axed by major banks in recent years and more recently upfront commissions reduced.

In a briefing to brokers earlier this week Heath said that the company was aware that the changes were likely to have affected brokers’ businesses. “Rest assured we have tried to limit the impact as much as possible and implement changes that support the future growth and sustainability of your business.”

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