What are commissions?

Payers are product issuers: lenders, insurers, fund managers and manufacturers. Recipients include mortgage and finance brokers, insurance brokers and agents, financial planners and product distributors, comparison sites and online platforms that refer customers, and in-house distribution teams or aggregators that receive volume-based overrides or bonuses. Commissions also arise in commercial arrangements such as asset finance placements.

Commission remunerates distribution activity, but it also creates incentives. Knowing the structure and timing helps customers judge potential conflicts of interest, and helps intermediaries meet their disclosure and record-keeping obligations.

Upfront (initial) commission is a one-off payment at the time of sale or placement, common in insurance and loan origination. Trail (ongoing) commission is paid over the life of the product, for example a percentage of each renewal premium or of the outstanding loan balance, which falls as the loan is repaid. Either can be calculated as a percentage of premium, loan value or assets under management, or as a flat fee per sale or referral.

On top of those sit volume bonuses and overrides for hitting sales targets, and referral fees paid to whoever introduces the customer. Clawbacks run the other way: if a sale is cancelled, the product ends early or performance conditions are not met, the intermediary repays part of the upfront commission, usually pro rata over an agreed period. That protects the issuer and affects the net commission the intermediary keeps over time.

Higher upfront commission can favour one product over a cheaper alternative, volume bonuses can push issuer-preferred products, and trail can encourage leaving a customer where they are. Intermediaries manage this with a conflict of interest policy and plain-language disclosure of the type and amount of any monetary benefit. Where an adviser gives personal advice to a retail client about general insurance, level-commission life insurance or consumer credit insurance, the law requires the customer's informed consent, recorded in writing, before the commission can be accepted, and ASIC publishes guidance on what that consent must cover. For loans, that disclosure sits in the broker's Credit Guide.

Intermediaries keep records of disclosures, consents, calculations and remuneration schedules for audit, and re-disclose trail arrangements at renewals or variations. Commission income is generally assessable income for the intermediary; check the ATO's guidance for the tax and GST treatment.