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Aussie banks told to scrap commission payments

A review commissioned by the Australian Bankers' Association has recommended commissions for mortgage brokers be replaced with a fee-for-service model - and there are fears that may flow through to New Zealand.

Sunday, April 23rd 2017, 8:38PM

by Susan Edmunds

The Sedgwick Retail Banking Remuneration Review also recommended cutting bank staff sales targets.

"Some current practices carry an unacceptable risk of promoting behaviour that is inconsistent with the interests of customers and should be changed," report author and former Australian public service commissioner Stephen Sedgwick said.

It follows a review by ASIC which found that the standard model of upfront and trail commissions created conflicts of interest, and brokers could be recommending loans larger than customers needed.

Sedgwick said banks should also stop their soft-dollar payments to brokers and no longer increase incentives during campaigns.

“Neither ASIC nor this Review has found compelling evidence of systemic harm that would warrant the outright banning of such [commission] payments. Nonetheless I believe, analogously to direct sales channels, changes can and should be made to reduce the risk of mis-selling, including in view of the heightened public concern about the potential for mis-selling in parts of the financial services sector currently," he said.

"The reforms necessary to implement Mr Sedgwick's recommendations are wide-ranging and significant. The recommendations affect all of our customer-facing teams, including branch, call centres, and mortgage brokers. Implementing them will require extensive consultation across a range of stakeholders, which we will commence immediately," CBA group executive retail banking services Matt Comyn said.

Commentators said it was likely that if their Australian parents made changes, New Zealand banks would follow suit.

But Bruce Patten, a Loan Market broker and deputy chairman of NZFSG, said he hoped it would not happen in New Zealand.

"The idea of fee-for-service will reduce the number of advisers in the industry and provide less quality and more transactional-based advice because volumes will have to be greater to earn sufficient income," he said.

"Since Westpac reintroduced trail commission back in October 2014 and more recently BNZ, their client retention rates have improved massively, because advisers are now being remunerated to actively manage their clients, and if they don't the trail is transferred to another adviser if the client chooses to go somewhere else. I'm sure if you compare their model to non-paying trail banks you will see they are struggling to stop the churn in their businesses.

"If we moved to a straight fee-for-service model … I would see it as a backwards step."

But he said there were already signs the Australian banks were pushing some of their changes in New Zealand.

Tags: Commission

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Lender Flt 1yr 2yr 3yr
AIA 4.55 3.55 3.89 3.99
AIA Special - 3.05 3.39 3.69
ANZ 4.44 3.29 3.45 3.85
ANZ Special - 2.79 2.95 3.35
ASB Bank 4.45 ▼3.35 ▼3.19 ▼3.85
ASB Bank Special - ▼2.85 ▼2.69 ▼3.35
Bluestone 4.44 4.44 4.29 4.34
BNZ - Classic - ▼2.79 ▼2.69 ▼2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼3.39 ▼3.29 ▼3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 2.80 3.15 3.19
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.80 2.89 3.50
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC ▼4.40 ▼2.95 ▼2.95 ▲3.69
Kainga Ora 4.43 ▼3.29 ▼3.39 ▼3.85
Kiwibank 4.40 3.74 4.14 4.40
Kiwibank - Capped - - - -
Kiwibank - Offset 4.40 - - -
Kiwibank Special - ▼2.65 ▼2.79 ▼3.25
Liberty 5.69 - - -
Lender Flt 1yr 2yr 3yr
Napier Building Society - - - -
Nelson Building Society 4.95 3.75 3.99 -
Pepper Essential 5.18 - 4.98 4.98
Resimac 3.49 3.45 3.39 3.69
RESIMAC Special - - - -
SBS Bank 4.54 4.85 5.05 5.49
SBS Bank Special - 2.99 3.05 3.69
The Co-operative Bank - Owner Occ 4.40 ▼2.79 ▼2.95 ▼3.39
The Co-operative Bank - Standard 4.40 ▼3.29 ▼3.45 ▼3.89
TSB Bank 5.34 3.59 ▼3.59 4.19
TSB Special 4.54 2.79 ▼2.79 3.39
Lender Flt 1yr 2yr 3yr
Wairarapa Building Society 4.99 3.95 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.79 ▼2.69 ▼2.79
Median 4.55 3.32 3.39 3.69

Last updated: 28 May 2020 10:38am

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