Hidden Commissions…

Do you think about the wage of the barista when you buy your favourite coffee?

Ok, neither do I. But, think about it for a second.

Do you expect the wage for your favourite barista to be somehow reflected in the price of your coffee? For that matter, do you expect the wage of your doctor, or the wage of your hairdresser, or the wage of your dog-walker to be somewhere in the price that you pay for the services you buy from these people?

Yeah, when I think about it, I too reckon that the price of the coffee somehow has to cover the wage of the talent behind the expresso machine making it.

Jane Searle writes for the Financial Review. She wrote a piece this week about ‘Smaller Lenders could lose their edge’ saying that small non-bank loan providers had to be able to charge exit fees when customers left their loans early. Proposed government reforms to increase people’s ability to switch loan providers and boost competition are potentially putting the profit margins of smaller lenders under threat.

She quotes a chief financial officer from a non-bank lender who says that deferred establishment fees (strange name for exit fees?) accounted for ‘broker commission and mortgage insurance premiums, none of which the borrower paid if they stayed for the life of a loan’.

Now, this guy might have been misquoted, but like the barista’s wage, the wage or commission of the loan broker has to be included somewhere in the price a borrower pays.

Why can’t the financial services industry price like other service industries? Tell us what the real price is, stop trying to hide the price in ‘deferred charges’, and aim to deliver value for your price to your customers not just initially, but every year. Maybe you won’t lose as many clients exiting earlier than they had initially planned. Hidden commissions or charges are foundational in the Berlin Wall insulating the financial industry from better pricing and competitives practices that will deliver greater value to ordinary Australians.

Let’s put the full cost in dollars on the price tag. Yeah, that’s hard, but that’s not a reason not to do it. People don’t read the fine print, nor should they be expected to when buying finanical services or their morning coffee.

What do you think?

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