Brokers continue to put forth arguments against moving to a trailer fee-based commission structure, with one broker pointing to the potential for dishonest brokers to withhold paying associates the proper commission.
“The biggest problem with implementing a trailer model in our industry is the fact that all the ones I've come across pay the broker, not the associate the trails, Daniel Mckay of Alberta Mortgage Centre wrote on MortgageBrokerNews.ca. “ As an associate you have to trust your broker to pay you those trails as they are not paid directly to you.”
McCay says he was once burned as an associate, himself, and refuses to implement such a structure within his own brokerage unless regulatory changes are made to protect broker employees.
“Many brokers use this to hold associates hostage within the brokerage, and do not keep paying the trails to the associate if they leave the brokerage,” McKay said. “I was burned by this as an associate in the first brokerage I worked in, and refuse to implement a trailer model into the brokerage that I now run unless the industry does something to prevent the stealing of trails from associates.”
The discussion was spawned by a call from industry players in Australia – including both brokers and industry regulators – who are considering a shift from up-front commissions to fee-based commissions.
“Experience has shown that commissions paid upfront tend to encourage less rigorous attention to loan application quality,” concludes a recent guideline paper from the Australian Prudential Regulation Authority, the Down Under equivalent of FSCO.
The assertion – brokers are more likely to withhold key client information under the tradition system of remuneration than the trailer model – was echoed by several Australian lenders in August as part of a broad regulatory inquiry process meant to better protect the country’s broker channel.