Pressure to remove soft benefits and incentives will prompt more changes to broker commission models
Other Australian lenders are expected to amend their remuneration structures following ANZ’s changes to its upfront commission model, with major banks to lead the way.
ANZ will pay brokers an upfront commission of 62.5 basis points effective 1 February 2018, up from the current 57.5 basis points.
Under the new structure, ANZ will no longer give brokers volume-based incentives, following the Combined Industry Forum’s proposal to stop the payment of volume-based bonus commissions and campaign-based commissions in response to the ASIC and Sedgwick reviews.
ANZ’s trail commission structure remains the same.
While ANZ is ahead of the curve, other lenders are likely also re-examining their own broker remuneration models in the wake of the CIF reforms.
“It’s indicative of what’s going to happen – the pressure as a result of the ASIC inquiry to remove soft benefits and incentives, particularly volume-based incentives," said Martin North, principal at Digital Finance Analytics.
He believes the change in ANZ’s upfront commission model is a good move because it streamlines the structure and makes it clearer.
“The problem with volume incentives and soft benefits is that they raise complexity and confusion in the minds of potential consumers, on whether they are getting the best advice they could get and whether the advice is in some way being influenced by financial incentives. Anything that can be done to remove that ambiguity is a good thing,” he said.
Arthurmac & Co's managing director Stuart Styles said discarding the volume-based incentive is a positive for most of the broker community and the public at large, "as it removes a question mark of allegiance to any particular lender. It also opens a way to creating a level playing field in this space."
While some brokers believe it is still too early to tell how further changes to broker commission will affect their business, they welcome such changes if they will help improve customer experience.
“Ultimately, if the reforms help deliver better customer outcomes, then that is a good thing,” said John Flavell, CEO of Mortgage Choice.
Broker remuneration is always under review because it is a fixed cost for banks, said Mr Styles.
"They have the ability to change this overnight with little consultation from the broker community as it suits them. In the past, during the global financial crisis, the banks took a scalpel to commissions as their first order of business and passed this off as a cost saving. It actually turned out to be a blatant grab for profit as they increased their market share hand over fist!"
David Meadows, client services manager at Astute Financial, said further regulatory reviews and changes to remuneration structures will affect profitability, but that such changes are not entirely bad. “Increased regulatory reviews are happening across the financial services industry,” he said. “We are not the only ones going through them.”
For now, ANZ’s tweaking of its commission system is not believed to be a disincentive for brokers. It in fact represents a slight increase in broker commission, said North.
“My understanding is that not very many brokers would have gotten the higher commission previously because it was volume-incentivised.”
This article first appeared in our sister publication Australian Broker.
Related stories:
Broker skills in high demand for 2018
Interest rates to lift in late 2018
ANZ will pay brokers an upfront commission of 62.5 basis points effective 1 February 2018, up from the current 57.5 basis points.
Under the new structure, ANZ will no longer give brokers volume-based incentives, following the Combined Industry Forum’s proposal to stop the payment of volume-based bonus commissions and campaign-based commissions in response to the ASIC and Sedgwick reviews.
ANZ’s trail commission structure remains the same.
While ANZ is ahead of the curve, other lenders are likely also re-examining their own broker remuneration models in the wake of the CIF reforms.
“It’s indicative of what’s going to happen – the pressure as a result of the ASIC inquiry to remove soft benefits and incentives, particularly volume-based incentives," said Martin North, principal at Digital Finance Analytics.
He believes the change in ANZ’s upfront commission model is a good move because it streamlines the structure and makes it clearer.
“The problem with volume incentives and soft benefits is that they raise complexity and confusion in the minds of potential consumers, on whether they are getting the best advice they could get and whether the advice is in some way being influenced by financial incentives. Anything that can be done to remove that ambiguity is a good thing,” he said.
Arthurmac & Co's managing director Stuart Styles said discarding the volume-based incentive is a positive for most of the broker community and the public at large, "as it removes a question mark of allegiance to any particular lender. It also opens a way to creating a level playing field in this space."
While some brokers believe it is still too early to tell how further changes to broker commission will affect their business, they welcome such changes if they will help improve customer experience.
“Ultimately, if the reforms help deliver better customer outcomes, then that is a good thing,” said John Flavell, CEO of Mortgage Choice.
Broker remuneration is always under review because it is a fixed cost for banks, said Mr Styles.
"They have the ability to change this overnight with little consultation from the broker community as it suits them. In the past, during the global financial crisis, the banks took a scalpel to commissions as their first order of business and passed this off as a cost saving. It actually turned out to be a blatant grab for profit as they increased their market share hand over fist!"
David Meadows, client services manager at Astute Financial, said further regulatory reviews and changes to remuneration structures will affect profitability, but that such changes are not entirely bad. “Increased regulatory reviews are happening across the financial services industry,” he said. “We are not the only ones going through them.”
For now, ANZ’s tweaking of its commission system is not believed to be a disincentive for brokers. It in fact represents a slight increase in broker commission, said North.
“My understanding is that not very many brokers would have gotten the higher commission previously because it was volume-incentivised.”
This article first appeared in our sister publication Australian Broker.
Related stories:
Broker skills in high demand for 2018
Interest rates to lift in late 2018
