Trailing commissions, also known as renewal commissions are a part of most financial products fee structures. They are ongoing and regular amounts that your bank, insurer or fund manager pays the brokers, agents or financial planners who originally helped establish your loan, policy or account.
They are usually paid to the agent who is listed on your account which typically would be the person or organisation that had a hand in establishing your policy, account or loan in the first place. Even if you have established your accounts or policies yourself without the aid of a broker or agent, in many instances your product provider will simply keep these payments – they are not given back to you.
Whenever there are payments of cash involved, they usually act as an inducement for someone to perform whatever action the payer wants them to perform, and trailing commission payments are no different. They are a very effective incentive for mortgage brokers, financial planners or insurance brokers to push/sell a particular company’s product to a consumer. It has been argued that these ongoing payments are made to brokers as payment for continual and ongoing service with respect to the product or service they once sold to a customer. This sounds nice in theory but in the real world, once the original sale has been made and the trailing commission payment plan is established, that is often the last time the consumer will hear from the broker who made the sale.
The amounts of these commissions vary but can be as high as 30% of your insurance policy premiums, 0.30% of the value of your home loan or 1% of the value of your superannuation balance every year.
This may not sound like a lot when phrased in percentage terms however, when you consider the average home loan of $400,000 generates up to $1,200 every year for the broker who introduced you to your bank and who you may not have not heard from since – it is a lot of money. Similarly if you (or your super fund) pay $1,000 for your life insurance policy then up to $300 per annum of your premium can be going to the broker who assisted you set it up.
The average Australian has accounts and policies that generate between $1,000 - $2,000 every year in these commissions. Most people are unaware that these commission payments exist and are being paid off the back of their accounts or policies, and are surprised when they learn the amounts can add up to be several thousands of dollars every year.
In addition, since these commissions are percentage based, as your premiums increase or the more superannuation you accumulate, the higher the commission amounts will be.
Most commission payments continue to be paid - like a river of money – throughout the life of your accounts & policies to brokers, financial planners and agents. This is because there is no incentive for either the payer or receiver to change the status quo, and the owners of the accounts & policies (the consumer):
There is however, something you can do about it. Although you cannot stop these commission payments, you do have the option (with the exception of home loans) of appointing a different broker to be listed as the broker on your account and therefore receive the commission payments on your behalf.
Cashback Club acts as a broker on behalf of our members, collecting these commission payments and returning these as cash amounts via their cashback account, giving clients a trailing commission refund every year in December for the life of an eligible policy or loan being in place.
To receive this trailing commissions refund, you simply need to nominate Cashback Club as the broker on your account or policy.
With respect to home loans, in order to change the broker listed on your loan and thus the broker authorised to collect your loan’s trailing commissions, you would need to refinance your loan. Cashback Club can assist you with this. This would enable us to collect commissions payments for you on your new home loan. If this appeals to you please feel free to utilise Cashback Club’s Home Loan comparison tool and if you like what you see you can even apply for a new home loan online.