Ditching commissions in favour of a fee-for-service model in the mortgage broking industry will erode choice, one industry pundit has warned.

Nick Young, managing director of trail book purchaser, Trail Homes, said replacing a commission model with a fee-for-service model – which was seen in the financial planning industry – will harm consumer outcomes by limiting choice.

“Currently, whether a consumer goes to a bank or a broker, the costs and fees associated with the loan are the same.  This places the differing distribution channels within the mortgage industry on an equal footing, and so encourages healthy market competition and encourages the broker to focus on the consumer’s needs,” Young said.

“With the deterrent of a fee structure, consumers will understandably bypass the broker channel and be driven to engage directly with banks and thereby may miss a complete understanding of what options were available.”

He said it may also force consumers unwilling to settle for the branch channel to try and be their own broker.

“Conversely, a fee-for-service model will push consumers to either pay more for a broker’s involvement or do their own due diligence and subsequently be over-exposed to largely incomparable information that they’re arguably unqualified to interpret,” Young said.

Young’s warning comes after speculation trail commission may be banned as a consequence of ASIC’s remuneration review of the mortgage broking sector.

However, Young ultimately believes the review will shine a positive light on the sector.

“I believe it will highlight the strengths of the existing model and spotlight the cornerstone of the industry: the power of the broker/ client relationship, which in turn is based on the fundamentals of choice,” he said.