The opposition party previously indicated it would agree with all of the recommendations from Kenneth Hayne's Royal Commission report.
The Royal Commission final report called for a fee-for-service model paid for by customers, a ban on trail commission, and a broad ban on other forms of commission. Hayne's call to ban trail commission is set to come into effect next year.
Labor's decision to oppose a fee-for-service model is politically significant, and aligns with the country's Liberal party. A move to ban all commission is now unlikely to pass through parliament. Labor said it changed its mind after reviewing guidance from the Productivity Commission, which warned a fee-for-service model would hurt competition.
The U-turn comes after the Australian broking industry launched a fierce campaign against reforms. Major broking groups including Loan Market encouraged customers to petition the government, while industry body the MFAA rolled out a national advertising campaign. The adviser industry believes a fee-for-service model will drive customers direct to their bank.
Labor still supports a ban on trail, but wants lenders to pay brokers an flat, upfront commission. Labor believes the fee will stop lenders and advisers pushing over-sized loans. It wants to introduce a capped commission rate of 1.1%.
In a statement today, Labor's Shadow Treasurer Chris Bowen also called for commission clawbacks to be limited to two years, and added the party supports a ban on other "incentives" from lenders to advisers.
Labor's softened position could prompt other political parties to re-assess their implementation of the Hayne report. Scott Morrison, Prime Minister of Australia's Liberal-National coalition, and Treasurer Josh Frydenberg have expressed reservations about the validity of a fee-for-service model.