The Sedgwick review has proposed a move away from volume-related commissions. Three top brokers share their thoughts
The Sedgwick review has proposed a move away from volume-related commissions. Three top brokers share their thoughts
Josh Durrant
Director
Choice Capital
It’s hard to comment on how these changes will impact my business without knowing the full details. However, I will say the effort that goes into organising a loan is not always directly related to loan value. Sometimes smaller loans can be just as complex, which means more hours worked for less revenue. In this industry you take the good with the bad and try to provide the best service you can for all clients. The banks ultimately control how much people borrow, so continuing to look at lending policy and borrowing justification rather than commissions would be best.
Daniel Hustwaite
Principal
Aqua Financial Services
Whilst loan complexity is not directly correlated to loan size, it would be fair to suggest that, generally, this theory holds true. Higher net worth clients will generally have more complex lending needs (eg cross-collateralisation), more complex structures, and their goals may need to be addressed with niche products (eg for doctors and lawyers). These clients invariably require a larger time commitment to fulfil their specific needs. In the absence of a more suitable remuneration model that can identify and reward effort, we believe maintaining the status quo is the best way to proceed as opposed to a flat fee from the banks.
Xavier Quenon
Owner
Go Mortgage Corporation
I believe it is a flawed model – not only as it could lead to abuse from the banks in how much they pay brokers but also because of the potential effect on borrowers and interest rates. Would the Tax Office like every taxpayer to pay a ‘flat tax’? No, because the bigger taxpayers help pay for the system so the little taxpayers benefit too. With a flat-fee model the smaller loan borrowers would end up compensating the system, which could be high in percentage to their loan amount, and the banks may need to justify the fee with more aggressive interest rate tiers for smaller loans.
Josh Durrant
Director
Choice Capital
It’s hard to comment on how these changes will impact my business without knowing the full details. However, I will say the effort that goes into organising a loan is not always directly related to loan value. Sometimes smaller loans can be just as complex, which means more hours worked for less revenue. In this industry you take the good with the bad and try to provide the best service you can for all clients. The banks ultimately control how much people borrow, so continuing to look at lending policy and borrowing justification rather than commissions would be best.
Daniel HustwaitePrincipal
Aqua Financial Services
Whilst loan complexity is not directly correlated to loan size, it would be fair to suggest that, generally, this theory holds true. Higher net worth clients will generally have more complex lending needs (eg cross-collateralisation), more complex structures, and their goals may need to be addressed with niche products (eg for doctors and lawyers). These clients invariably require a larger time commitment to fulfil their specific needs. In the absence of a more suitable remuneration model that can identify and reward effort, we believe maintaining the status quo is the best way to proceed as opposed to a flat fee from the banks.
Xavier QuenonOwner
Go Mortgage Corporation
I believe it is a flawed model – not only as it could lead to abuse from the banks in how much they pay brokers but also because of the potential effect on borrowers and interest rates. Would the Tax Office like every taxpayer to pay a ‘flat tax’? No, because the bigger taxpayers help pay for the system so the little taxpayers benefit too. With a flat-fee model the smaller loan borrowers would end up compensating the system, which could be high in percentage to their loan amount, and the banks may need to justify the fee with more aggressive interest rate tiers for smaller loans.
ACCORDING TO THE SEDGWICK REVIEW...
''The second proposal is to move away from payments to Aggregators and Mortgage Brokers that are related to the value of the loan in favour of arrangements more nearly tied to the effort required to secure a loan … loan complexity, and thus the effort required by Mortgage Brokers to secure a loan on behalf of the consumer, may be more closely correlated with the characteristics of the borrower. An alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.”
''The second proposal is to move away from payments to Aggregators and Mortgage Brokers that are related to the value of the loan in favour of arrangements more nearly tied to the effort required to secure a loan … loan complexity, and thus the effort required by Mortgage Brokers to secure a loan on behalf of the consumer, may be more closely correlated with the characteristics of the borrower. An alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.”
