"The removal of trail will simply hand more power to the major banks"

Banning trail to brokers will consolidate the lending base of the banks— putting more power in the hands of the major and non-major lenders— cut competition and force consumers to the pay the price, AFG CEO David Bailey has warned.

“This is ironic given the tone of the majority of the final report. Consumers have been voting with their feet in greater numbers for over 20 years and increasingly use brokers for better service and less costly, better-suited home loans,” Bailey said in a statement on Monday following the release of the Productivity Commission’s final report last week.

According to Bailey, trail commissions encourage mortgage brokers to remain with their customers throughout the life of the loan and continuously help them “gain better financial outcomes as circumstances change”. Banning this incentive would negatively affect the very service brokers provide — greater competition.

A recent Deloitte report found that brokers helped smaller lenders increase their market share to 28% in 2017, up from 21% in 2013.

Bailey also pointed out that the PC’s recommendations “stood in stark contrast” to the recommendations proposed in the data-driven ASIC Remuneration Review, which found no reason to eliminate trail.

“The current structure is not broken. The removal of trail will simply hand more power to the major banks and non-major lenders and consumers will pay the price,” he said.

He pointed to the thoughtful and deliberate progress being made by the Combined Industry Forum to address the proposals raised by the regulator in that earlier report and cautioned against knee-jerk reactions.

“In light of this progress, momentum-based decisions which ignore the full ramifications of such a move need to be carefully considered,” Bailey said.

“The last thing Australian consumers deserve is higher prices for lending products and less competition where banks can drive up costs for existing customers.”

“We can’t afford to jettison 20 years of competitive experience without giving regard to the findings of other reviews and ensuring a stable, dynamic, customer focused lending environment remains.”