An SME lender has voiced concerns about the future of business lending
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Needless to say, the recommendation of the Royal Commission concerning trail commissions and volume-based bonuses didn’t sit well with the broking industry.
In an interview with MPA, two seasoned brokers gave their thoughts on the possible consequences the decision would have on both brokers and customers, and what the industry should do next.
According to Graeme Holm, Infinity Group Australia director and 2018 MPA Top 100 Broker finalist, the recommendation was made “with a complete lack of understanding of the ongoing service provided to consumers.” The move would only hand back monopoly to big banks that are strangers to ongoing service and advice, and increase their profit margins.
“It’s a huge concern and I worry it will turn a customer-service based profession into a transactional- based sales industry which is the exact opposite of the intent of the RC. The recommendation really did not consider the consumer in this recommendation,” Holm said. “It shows the urgent need for actual case studies of why majority of consumers look to brokers.”
For Calculating Lending director Bianca Patterson, the most concerning unintended consequence of the commission’s recommendation would be to cause small businesses to revaluate their teams or service propositions to keep their doors open.
“If these changes come into effect, we run the risk of losing great brokers with years of invaluable experience, experts that we hoped would mentor the next generation of brokers. This is a loss that clearly was not considered and just can’t be quantified until it is too late,” Patterson said.
“It is truly a sad day for our industry and consumers.”
Only for the wealthy
Patterson said brokers provide immense direct value to consumers. They provide choice, transparency, guidance, and long-term, trusted relationship. Abolishing trail and considering replacing it with fee-for-service model would render broking a service only the wealthy can afford; when in reality, it’s needed more by first home buyers and low-income earners.
Holm said lawyers are not the typical client avatar for family home loans. Without taking into account the experiences of the nearly 60% of borrowers using brokers, it was very much an “ivory tower recommendation” that “holds no ground-level experience or practical evidence”.
"It is an easy attack while appearing to be proactive against banks. But it is simply attacking the consumer and the professionals who only get remunerated for ongoing assistance," Holm said.
If implemented, the recommendation will only result in a user-pay system. “Ongoing review of client loan products and features, administration and clerical works to fix rates, and product switch are now going to have to be billed to customers,” he added.
Patterson thinks it’s imperative for brokers to prepare, if they haven’t already, for the recommendation and for government timelines. However, she also advised that “now is not the time to panic or for rash decisions,” encouraging brokers to, more than ever, support each other.
“I encourage everyone to get behind their Industry bodies and aggregator’s campaigns, to speak to their local members of Parliament and take any opportunity they can to have our balance and professional arguments heard,” she said.
“Brokers now originate 59.1% of loans and that number keeps growing. Consumers can clearly see something that Commissioner Haynes missed as they keep choosing small businesses over large corporations. Not many other industries have that kind of statistic behind them!”
Holm would put his full support to the commission’s recommendation if it would make things more efficient or provide consumers substantial benefits, but it wouldn’t. He considers the recommendation “narrow-minded” and “baseless”, and feels that the Royal Commission panel should stay in his office for a week to see what his team does for trail.
“At the end of the day, we just have to continue serving clients, hoping logic will be applied,” Holm said.
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