Speaking to ifa sister publication The Adviser about the discussions around trail commissions and the focus on the payment system by the financial services royal commission, the chief executive of Aussie Home Loans, James Symond, said that he believed that the history of trail commissions had been forgotten and history had already taught the industry that large upfront commissions and no trail increased churn.
Mr Symond said, “I think people have forgotten why the current remuneration structure exists. Like in the UK and US, when this industry first started [lenders] paid a large amount of money upfront as a profit share of the loan that brokers had drawn up to the bank. For example, you were drawing up a $300,000 loan, signing the customer up, sending them to Citibank (which at the time was a prominent market player), and Citibank would give you a 1 per cent commission, or large fee upfront, as a profit share.
“What happened very quickly is that they realised that they didn’t want this thing called churn. They realised very quickly that economically, it worked much better to reduce the upfront and not pay 1 per cent but maybe pay half the commission upfront and then maybe the other half over a three or four-year basis, or over perpetuity, to make sure that a) you are sharing the profit ongoing and b) you are ensuring the service to the customer as the broker is ensuring that the customer is sticky.”
Mr Symond continued, “Lenders paid this commission structure as they knew that brokers were making sure the customer was happy, making sure the customer had ongoing regular contact – so regular health checks etc – and it gave them piece of mind as they knew that was making sure the broker keeps their eye on the ball with ensuring that the customer is happy with the product and the service they are receiving.”
Noting that the final report for the financial services royal commission is expected to be released in early February, and that the commission had been focusing in on trail commissions during the hearings, the Aussie CEO suggested that moving to a “one hit upfront” commission and removing trail could see brokers “potentially move to just refinance the customer over and over again, like they do in the US and like they do in the UK”.
He continued: “So, having an ongoing trail commission is about making sure the customer is happier, stickier and that the banks are happy too.
“In terms of the actual amount of the trail fee, larger loans as a general rule (at least, in my experience), are more complicated and generally come from customers that are more sophisticated and more demanding. And smaller loans as a general rule (in my experience) are less complicated. That, for me, is how it works and for people to say otherwise are simply wrong, in my opinion. They’re wrong.
“I grew up in this industry – we were the first dogs in the Paddock, I’ve been doing this since I was 19. So I have a lot to say and I feel very strongly about this; there are times to speak and there are times to remain quiet, and at the moment – it is a time to speak.”
Too right you are matey. Ya nailed it good. We’re all bloody forgettin everything.
When I started in the life insurance sales game back in ’69 there was no nonsense about big bloody commissions and fees for no bloody service (unless it was at the Thai tub and rug on a busy Fridie arvo but that’s for me other magazine, ya know, the one I read for the stories not the pictures). The lads (and there were no bloody sheilas, which was bloody beaut) just got out there and sold and sold and sold until we hit the pub at 12 on Friday arvo and got blind as.
Hole of life pollies (not the little Jonnie Howard ones) were the go mate. Sign ‘em young and sign ‘em quick. Just scare ‘em. Make ‘em think they’re gonna die. None of this conflict of interests disclosure stuff and best bloody interests malarkey. Comparin the friggin products. It makes me puke and it makes ‘em think too much. Bin all of it. Just get out there and sell sell sell. You see, you gotta be quick. Don’t let ‘em think about the holes of their lives. Ya lose when they think, if ya know what I mean.
Write it down. Best advice I ever gave ya.
The moola? It was like Bradman batting at both ends mate. The boys all made tonnes, if ya know what I mean.
Agency bloody development loans. Woohoo. Thank god for old Gilly over at NMLA in the ‘80s (Nah not the cricketer you idiot. That’s another Gilly.) We were rolling in the doe if ya know what I mean. Never paid a bloody cent back either, if ya know what I mean. NMLA became the AMP… no bloody surprise there mate if ya know what I mean.
I reckon it went downhill when that jerry bird German Greer wrote her bloody book about Eunicks and all the bloody sheilas started to think they could sell the stuff too. I blame it on German and her bloody commie mates at the ABC and the IFA. Bloody women. Emily’s bloody list mate. They even give ‘em trophies now. Best bloody sheila financial planner. As if. Next up it will be the best bloody I identify as a trannie financial planner. They’ll call it the Bloody Emily. I’m out of ‘ere if they do mate if ya know what I mean.
We don’t need this SISSY-FOSSIE-FASEA-FPA-FOFA-LIFA-ASIC-ISIS crap. WE NEED A BLOODY WALL TO KEEP THE COMMIES OUT.
Bring back me pal Kal. He’d fix ya quabbles with a few gingery beers and a quick counter T. No Qs asked. No file notes kept. (Just a few bob in the boys’ early retirement kitty, if you know what I mean.) And Bob’s your bloody uncle. Probs. No. More. He was a Mr Fixer. Service for bloody fees if ya know what I mean.
THEY WERE THE DAYS.
That was brilliant. Well done.
What a load of tripe. Probably written by a servant of an industry fund that sells dodgy DEFAULT life & IP to unsuspecting idiots who care about price only, or a junior “holistic ” adviser who does not understand that advice, to be effective has to be “sold” to have any value. Reading your fantasy was like listening to the half-truths of a right wing Senator who has just been caught out abusing the taxpayer.If you did indeed start in life insurance over 50 years ago your food & alcohol consumption levels would have killed you ages ago
Memo to those life insurers currently walking both sides of the street, telling their respective stakeholders what the insurers think the recipients want to hear. If you are sitting back thinking a move from the RC to ban trails on life insurance will add to your profitability, and you wont tell the Government the Emperor has no clothes, WATCH THIS SPACE. As Mr Symond says, stand by and watch those advisers still in the game, after FASEA and LIF have reduced advisers from 25,000 to 15,000, take revenge by wrecking havoc on your in-force business. Everything he is saying about mortgage renewals applies equally to life insurance renewals/trails
…and don’t forget the fat cat State Governments when their stamp duties start to dwindle with fewer insurance policies being written and staying in force!!!!!!
Banning commissions (both trail and upfront) for mortgages or life insurances is a horrible idea which will see the end of independent advice for both. Brokers will be forced to go work for the banks/insurers directly and the customers will be forced to do their own comparisons.
Whilst loans are pretty simple and most people could figure it out themselves. Insurances (other than life insurance) are complex and can contain so many variables. Most clients will mainly consider the price which, whilst important, is not the only consideration and when they get sick or injured they will find out that their policy is basically worthless. Don’t get me started on the need to have the service given by good insurance brokers at claim time
Well said, the conveniently amnesic banks and insto’s are aiming to deflect the RC and public negativity onto brokers and planners rather than themselves.
If the RC findings are as flawed as I believe they will be, then our entire financial system will suffer a major blow as things turn sour quite quickly. This will only be exasperated if & when the poster boy for the short man syndrome, Mr Shorten, gets into power with his ridiculous reforms and politicised agendas.
Both political parties have said they will implement the recommendations of the RC. Shorten will be horrible for everything but the LNP has been the enemy of small business and the australian public (to the benefit of multinational corporations) for a long time.
No one understands the issues and the was to fix the industry other than the independent advisers/brokers.
Why dont they just introduce the best interests and know your client rules for every financial sale and let the independent brokers get back to doing the thing that only we ever did in the first place – looking after OUR CLIENTS. At least the client has protection when things go pear shaped when these 2 rules are inforced.
too much common sense with your comment. Remember we now have an army of lawyers and bureaucrats who are trying to reinvent the wheel.. most likely to feather their own nest.. buy hey, there would be no conflicts though!!!!!! Just follow the cash and bonuses.. that’s where the true answer lies.
I remember attending a broker event as a guest about 4 years ago and the head of whatever groups event I was attending stood up and gave the old Winston Churchill speech about fighting them on the beaches.
My comment coming from a FP background was to see the writing on the wall and consider alternative business models to adapt and be a market leader.
Trails are dead and in insight probably rightfully so
I suggest taking my advice from years ago and look to a different business model.
The same will happen to Life industry, no (trail) commissions no incentive to conserve and service (ongoing service agreements notwithstanding) the main issue here is the lack of thought by the opponents of commissions on what the alternative will mean for advisers, clients, insurers and the burden the inevitable (increasing) insurance gap will have on the national purse.
They have thought about it, they don’t care what happens to advisers, insurers and consumers. It is a narrow simplistic view that I would be ashamed of my 3 year having.
I find it astounding that mortgage brokers dont have access to the loan information for their clients in the same way we do as financial planners for the super, insurance & investment solutions we recommend for our clients. When someone like Matt Comyn says that brokers dont do anything for their trail comms, it’s because they dont have access to the data to allow them to do anything. If I have a client who misses an insurance premium payment, I know about it straight up. I can contact the client work out whats going on, make alternative arrangements, review their policies, etc etc. In contrast, if a client misses a mortgage payment, there’s no notification to the broker, there’s no ability to follow up on any reasons why, to offer assistance with cashflow, to offer some assistance with their debt management etc etc. Like most things, better access to meaningful information results in better outcomes for all.
Yep.. just like life insurance. Once the left wing activists get a hold of an issue it never lets go until the industry is destroyed.
Time to speak, after the horse has bolted. Too late mate….. where where you during the RC?
Lets see what the RC report entails shortly….