What discretionary commission was
Under a discretionary commission arrangement, a broker or dealer could adjust the interest rate offered to a customer, and their commission moved with it. A higher rate meant more commission.
The obvious problem is that it put the customer's interest and the broker's interest in direct conflict. The FCA banned these arrangements in January 2021.
What it means in practice now
Commission still exists — brokers are paid for arranging finance, and that is normal. What has gone is the ability to increase your rate to increase that payment.
- Your rate should reflect your circumstances and the lender's pricing, not the broker's preference.
- You are entitled to clear disclosure that commission is being paid.
- You can ask about the commission arrangement, and you should get a straight answer.
What to ask
- Is the rate you have offered me affected by what you are paid?
- How many lenders did you consider, and why this one?
- What is the total amount payable, not just the monthly figure?
- What happens if I want to settle early?