Global research by the Finance Brokers Association of Australia (FBAA) has shown that Australia is the only country in the world where clawbacks exist.

The research was conducted by the FBAA as part of its submission to the Australian Securities and Investments Commission Home Loan Commission Review for Minister for Financial Services Kelly O’Dwyer.

Executive director Peter White says the stumbling block is banks wanting to gain or hold market share in their lending portfolios.

“Brokers in Australia are clearly meeting the demands of the borrower market place and lender cost-effective distribution needs,” commented Mr White.

“Clawbacks abuse the broker channel which the banks have prospected for some 27 years, but now we are seeing some banks and non-banks offering products with no clawbacks.

“If clawbacks don’t exist in the rest of the world, then there is no excuse for them to exist here.”

Mr White points out that unfair clawbacks reflect circumstances that are beyond the control of brokers.

He says a death, divorce, the sale of a house, termination of loans one or two months before the clawback period ends and bank movement from broker portfolio to branch portfolio are things that can’t be controlled by brokers.

Mr White says the FBAA is petitioning domestic lenders to remove all unfair clawbacks which he says are restricting new entrants into the industry.

Their research also revealed that brokers in Australia are among the lowest paid in the world.

In countries where there are no trail incomes, brokers are paid between 1 per cent and 3 per cent as their upfront commission with no clawbacks.

“In Australia, whereby a broker may receive 0.6 per cent upfront and 0.15 per cent trail on the amortised loan balance, they might achieve on the average life of a loan – being approximately 3.5 years – around 1.1 per cent in total commission over time,” added Mr White.

“The average commission paid as an upfront from our researched countries is 1.26 per cent and the average trail income, where paid, is 0.20 per cent.”

In countries where trail commissions are paid, there are better lender and customer outcomes and reduced churn of portfolios.

Media Contact: Brian Lowe – 0434 791 084