Two years later brokers were making approximately 25bps from trail commissions, but upfront fees were low. This trend switched in 2000 as the Australian mortgage industry went through enormous change and upfront commissions took precedence.
In an interview with MPA Magazine Matt Lawler, regional general manager of NAB Broker explains…"The veracity around which companies were looking for volume and product sales led the market to about 70bps upfront as an average.”
In 2005 lenders started to tweak trails. According to MPA Magazine, CBA changed trail commissions to 20bps in year one from the date of funding and 25bps from year two and NAB took a slightly different approach and introduced a trail commission that progressively increased from 25bps in the fourth, fifth and sixth years.
The thought behind this was to create a balance between product selling and client management. Better client management was sought to create ongoing loyalty.
It would seem things had settled, but trails are in constant evolution. This is not a bad thing, it is just the way the industry works. There will always be fluctuations, but there will also be massive upside to selling trails.
In 2008, the most dramatic changes occurred as lenders lowered upfronts and reduced trails in year one. The CBA introduced zero bps in years one and 20bps from year two. NAB also offered zero bps in year one, but incrementally increased to 35bps in years six and up.
There has been talk of trails fizzling in future, but this couldn’t be further from the truth. The market will continue to fluctuate, but to kill the market completely would be a burden on the competitive elements on the industry. In short, the broking industry needs trails to keep competition strong and protect the consumer.
As Joe Sirianni, executive director of Smartline told MPA: "Trail will continue. It is designed to reduce or eliminate churn, which it does - if done correctly. Lenders will make sure broker groups do what they should, to earn that trail. They'll want brokers to implement a customer care program, since trail is paid to make sure the client sticks with the lender. Lenders are sick of 'set and forget' broker transactions, and are looking for broker groups to stay in contact with their customers."
The fact is that some lenders are actually increasing trail components and brokers can take comfort from that. Brokers have an important role to play in relationship management and should therefore be rewarded for their work.