Thankfully, a few weeks down the track, it looks like the worst-case scenario of an upfront user-pays model is at least up for discussion, given comments from the Prime Minister, economists and, in recent days, the federal opposition.
But we don’t have clarity around what model will be adopted if trail commissions are ended for residential mortgages.
As Australia’s largest independent funder of SMEs, I would like to add our voice to the debate. My main concern is that any initiative that impacts the viability of the broker community will decrease consumer choice.
I do understand the position that Commissioner Hayne is coming from in seeking a model where consumer needs are first and foremost.
Consumers need a competitive lending marketplace, but the proposed changes to broker remuneration threaten to decimate the very channel that provides competition and choice.
Momentum Intelligence research highlights two telling statistics – 96 per cent of customers are satisfied or very satisfied with their mortgage broker, yet only 3.5 per cent said they would be prepared to pay a fee equivalent to the current upfront commission.
It’s clear that most consumers would not see the full range of loan options if we move to a user-pays model, because so few of them are willing to pay for this service.
If the banks can’t or won’t help a home or business loan applicant, on the face of it, most people will just give up and put their plans to borrow on hold.
Our biannual SME Growth Index research clearly shows that most business owners borrow because they want to grow.
So if SMEs give up when the bank says no, Australia’s economic growth will slow.
If implemented, the Hayne recommendation would initially impact residential brokers, but could flow through to commercial brokers, who play a major role in keeping Australia’s vital SME sector funded.
With due respect, the royal commission has underestimated the important role that brokers play.
Brokers help reduce risk for SME owners (and consumers), by finding funding choices that help them succeed and prevent them from losing their homes and their businesses.
With housing affordability declining, putting the broker fee back on the consumer may send them straight to the larger banks who can absorb such costs.
And from an SME perspective, almost all of Australia’s business owners are mums and dads who live and breathe their business. In most cases, they don’t know how to find the right lending solutions – and if they did, they’re too busy to do so.
The royal commission is already putting more rigor and hurdles in front of the banks when it comes to assessing loan risk fast enough for applicants.
SMEs need access to money. If business owners already struggling to get funding are rejected by the banks due to tighter lending restrictions, it’s important that they know where to turn.
The best way for SMEs to get suitable advice on funding options is via trusted business advisers, in particular, commercial finance brokers and accountants.
These advisers have a close understanding of their clients’ businesses, and this allows them to help SMEs find the best finance fit. In my experience, brokers take the time to explain to their clients how the different products work and what the risks and benefits are.
The brokers we work with are keen to get client referrals and repeat business, so they are motivated to provide good service and do right by their customers.
It would be ironic if an unintended consequence of a royal commission that set out to expose abuses of power and ensure this doesn’t happen again is to drive borrowers to give up on broader lending options and stick to the status quo.
Peter Langham is CEO of Scottish Pacific, Australasia’s largest specialist working capital provider. Helping thousands of business owners with the working capital they need to succeed, Scottish Pacific lends to small, medium and large businesses with revenues ranging from $500,000 to $1 billion.