Finance Brokers Smashed by Banking Royal Commission
Since the Banking Royal Commission released its final report on 1st February 2019 finance brokers have not stopped crying. For Australia’s 16,000 finance brokers, the value of their business has fallen 50% – 75% and there are no buyers. No one wants to try and catch this falling knife.
The Royal Commission recommended abolishing finance broking trailing commissions, and the Government is legislating to abolish them on 30th June 2020. The trailing commissions average 0.165% to 0.275% of the loans balance and are paid for the life of the loan. For many finance brokers the trailing commissions make up 50% of their income. Commissioner Kenneth Hayne QC called the trail commissions ‘money for nothing’.
Although upfront commissions are staying, ultimately this $2.1 billion industry will be forced to move to a fee-for-service revenue model, where the borrower pays the commission to the broker instead of the bank. Other countries such as the Netherlands abolished commissions years ago and the consumers have been the big winners.