"To remove trail commissions [would] adversely impact brokers’ businesses," said one non-major bank head at MPA's live panel
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The heads of broker business at St. George Bank and Suncorp have both expressed their support for trail despite the negative attention it’s recently received from the Productivity Commission.
“From a St. George perspective, we actually continue to see trail as an important part of broker remuneration,” said Sarah Willsallen, NSW/ACT state general manager for mortgage broker distribution, at MPA’s non-major banks panel discussion on Wednesday (14 March).
She said part of that is making sure that brokers continue to conduct a review process with their customers, and continue to understand their requirements and objectives as their circumstances evolve.
Mark Vilo, head of bank intermediaries at Suncorp, said commissions are the right way forward for the marketplace, especially with a direct lending channel and a broker channel competing for business.
“It will be challenging to get individuals to pay a fee for service that’s provided by a mortgage broker when they can walk into a branch and not have to do that,” he said.
“I think that to remove trail commissions [would] adversely impact brokers’ businesses, so we need to be really mindful of that as lenders across the whole spectrum.”
While the vast majority of brokers already do review their customers’ circumstances and service those ongoing relationships, there’s nothing actually embedded in the Corporations Act or anywhere else that explains what those rules are, Vilo said.
“I think there is an opportunity for us to clearly articulate what that means and what the purpose of trail is,” he said.
The commission has not made a recommendation on trail in its draft report, but it has said it is considering this for its final report to government. It is now seeking feedback on the “rationale for how commissions are structured”.
The industry argues that trail is in place for good reason: to prevent churn. But the commission has countered this, saying it could discourage refinancing if the work involved in getting a marginally better rate for the customer exceeds the benefit for the broker.
“[Trail] creates perverse incentives for mortgage brokers by rewarding them for keeping customers in their existing loan” and skews their loyalty towards the institution and not the customer, the commission said.
