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Aussie report calls for end of trail commission

Australia’s Productivity Commission has recommended the country's banks put a stop to mortgage adviser trail commission.

Tuesday, August 7th 2018, 2:10PM

by Dan Dunkley

The government advisory body has called for major banks put a stop to trail payments, in a report recently submitted to the Australian government.

The suggestion is part of the PC's wide-ranging report into Competition in the Australian Financial System.

The Productivity Commission was expected to call for a fee-for-service model for mortgage advisers, but stopped short of the suggestion. The PC said a fee-for-service model would drive customers away from mortgage advisers, reducing overall competition.

However, the call to end trail will anger Australian advisers, and those across the Tasman, with many of New Zealand’s major banks Australian-owned. Removal of trail commission in New Zealand would significantly hit the revenues of mortgage advisers, according to TMM’s Annual Survey. One in five mortgage advisers said trail made up 25-50% of their annual revenue.

The PC blames trail for creating “perverse incentives” for mortgage brokers, keeping customers locked into their loans, or with the same lender. "At its simplest, brokers have a strong incentive — regardless of what may be in their customer’s best interest — to give preference in their loan recommendations to lenders that pay higher commissions. This may be uncommon, but there is no obligation for transparency of the payment to prove it,"

The PC hinted its decision had been influenced by the recent Royal Commission: “The current structures of mortgage broker remuneration appear to have become entrenched more because lenders are reluctant to be a first mover in negotiating alternative approaches than because they are delivering desirable market outcomes. Evidence to the royal commission indicated as much.”

The report added: “change is required — to the role of the lender in being the paymaster — to reduce the scope for damage from conflicted advice”.

The recommendations will heap further pressure on the Australian government to make changes to banks’ commission structures.  The Productivity Commission also called on mortgage advisers to end volume-based commissions “immediately”, adding: “The absence of evidence that this is occurring affects industry credibility.”

Tags: regulation

« Avanti makes major home loan changesANZ scraps staff sales incentives »

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Lender Flt 1yr 2yr 3yr
ANZ 5.79 4.55 4.79 4.99
ANZ Special - 4.05 4.29 4.49
ASB Bank 5.80 4.44 4.69 4.89
ASB Bank Special - 3.95 4.29 4.49
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.10 4.29 4.49
BNZ - Std, FlyBuys 5.90 4.69 4.79 4.99
BNZ - TotalMoney 5.90 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.15 5.20 5.25 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.70 4.85 -
Housing NZ Corp 5.80 4.69 4.79 4.79
HSBC Premier 5.89 3.99 4.19 4.69
HSBC Premier LVR > 80% - 3.79 - -
HSBC Special - - - -
Lender Flt 1yr 2yr 3yr
ICBC 5.80 4.59 4.69 5.09
Kiwibank 5.80 4.55 4.69 4.99
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.05 4.29 4.49
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.94 5.30
RESIMAC Special - - - -
SBS Bank 5.89 4.85 5.05 4.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 4.19 3.95 4.49
Sovereign 5.90 4.45 4.69 4.89
Sovereign Special - 3.95 4.29 4.49
The Co-operative Bank - Owner Occ 5.75 4.10 4.35 4.49
The Co-operative Bank - Standard 5.75 4.60 4.85 4.99
TSB Bank 5.80 4.45 4.69 4.99
TSB Special - 3.95 4.19 4.49
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.69 4.79 5.19
Westpac - Offset 5.95 - - -
Westpac Special - 4.15 4.29 4.59
Median 5.89 4.50 4.69 4.79

Last updated: 2 December 2018 8:39pm

News Quiz

The maximum remuneration model for Australian life insurance advisers is to be set at what?

Upfront 40% + trail 20%

Upfront 50% + trail 10%

Upfront 50% + trail 20%

Upfront 60% + trail 10%

Upfront 60% + trail 20%

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