Attacking Brokers and the law of unintended consequences, be careful what you wish for.

The rush to take on board all of the recent recommendations of Justice Haynes Royal Commission into Banking includes not paying trailing commissions to mortgage brokers and a range of other recommendations that are not very good for the future of mortgage brokers.

Brokers are a feature of the Australian commercial landscape and survive on commissions be it in travel, insurance, cattle, most agricultural supplies, labour, property, shipping, international student acquisition etc

Brokers are a vital part of the Australian home loan landscape and individuals have spent years as well as blood, sweat and tears building great business's that provide a service for Australians.

Mortgage Brokers would not exists if the magical world of domestic banking worked as it should, but it does not, and, that is the reality that has been brutally exposed by the commission. Brokers have a filled a meaningful gap in the market and made thousands of Australian home lenders very happy and saved millions if not billions of dollars in interest rate payments by consumers to banks. Banks that it turns out don't operate with their consumers interest at heart and in some of the exposed cases to the consumers detriment. Savings that are then spent activating and growing other parts of the economy.

The triangle of failure between politicians, the regulators (ASIC and APRA) and the banks themselves should not be sheeted home to brokers and thus the consumer unintentionally.

The banks the big four will be the big winners if the broker model is sabotaged and the consumer through either a lack of choice or due to the sheer marketing size and scale of the big four will end up back at the banks in numbers. While no one says they are a cabal, concert party or big four oligopoly they do not offer much choice to consumers given the scale of the market. Their very inability to service the market to a standard required by the community was what fuelled the growth of the broker business in the first place.

Mortgage brokers thrived because the banks in many cases offered poor product, poor service, poor pricing, a lack of flexibility, a high fee model. They made it difficult and expensive to move or change and were relentless at trying to add in more high margin products like insurance services. They offered very complex products which were deliberately hard to compare with other banks, loans attached to intangible and undigestible terms and conditions. They compounded this challenge by offering the service at a high street location when most consumers needed to be at work. Worse still the appointments often did not keep to peoples valuable time, it was and is not a good reflection of how an advanced economy should run one of the largest sectors of the economy.

Brokers have been nothing short of excellent for consumers, customer focused, informed, with a range of product and rates lower than the banks in most cases. Sure they had an interest in some cases in, "churn" and that fact that has to be acknowledged, some were/are strictly commission driven and that needs better management, just as it does in travel sales and insurance sales or even white goods. However over all brokers have been good for the consumer, the working person, rather than the share holder, the bank, the cozy regulator etc. Brokers have grown the diversity of the market and the consumer choice by better servicing and niche servicing mortgage customers. (Disclosure: I have used brokers the last three times for home loans)

It is not the fault of the brokers that trailing commissions and some other incentives that are not as transparent to the consumer as they should be were put in place by the banks or that the disclosure regime and enforcement by ASIC and APRA was neither meaningful, forceful or well applied.

It is hardly surprising that what we are seeing is the punishment of a sector of the economy that ate into the big boys pie. A pie that is a big part of most super funds and ASX indexed financial products, a pie more intimately connected to the regulator, to Canberra and the major parties than to a broker servicing the Arabic, African, Armenian or gay communities of Melbourne, Sydney or Perth.

Destroying, eliminating or hamstringing these businesses, be it tacitly or with direct legislation will see the mortgage business simply return to the banks direct. The same people with their shrinking branch foot print, questionable ethics and customer service challenges. Those very businesses who have stunned us at the commission and whose poor product, service and diversity lead to the growth of the broker industry in the first place.

So be careful of the law of unintended consequences with this back to early 90s move. Canberra and the rush to election appeasement maybe putting people out of work, disadvantaging consumers and handing back more power to the banks and simply laying the foundation for a new set of brokers and the next commission in 10 years time.