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Advisers braced for government's financial safeguards

Mortgage advisers expect an additional regulatory burden from the government’s new financial safeguarding proposals, and have warned against the “unintended consequences” of changing remuneration structures.

Monday, April 29th 2019, 11:53AM

On Saturday, Commerce and Consumer Affairs Minister Kris Faafoi released an options paper aimed at improving the conduct of the finance industry and safeguarding consumers. The consultation paper, targeted at banks and insurers, features possible reforms that could affect the intermediary market.

The government wants to ensure banks and insurers pay intermediaries with the customer’s interests in mind. The government has outlined it wants to ban soft commission, and wants all remuneration to be designed with the customer’s interests at heart.

The government does not want to ban upfront commission for advisers, but wants to prohibit sales target-based commission. It will use enhanced "enforcement tools" to police  “good customer outcomes”.

The paper also proposes “imposing parameters around the structure of commissions”, and “limits on the percentage of upfront and trail commission”.

Reacting to the paper, leading advisers said they expect the proposals to add to an ever-increasing regulatory burden.

“All this legislation does is create more work for us which ironically makes it harder for us to operate efficiently on lower margins,” said Craig Pope of Wellington-based Pope & Co Mortgages.

“Things are pretty tough as it is, we have more paperwork, tougher criteria, clients more demanding as they struggle to get service from their banks, and banks using online methods to refix rates hindering the chance for advice. Add to that the claw-back liability and I don't thing there is any need to make our commission any less than it is already,” Pope added.

Glen McLeod of Edge Mortgages said trail commission was already an effective way of ensuring good customer outcomes. “It enables the advisers to have a team to assist in the advice process and frees up the adviser to advise the client on an ongoing basis and not have to be always hunting for new business.”

McLeod fears the regulatory onslaught facing the industry could leave the profession operating under a “nanny state”. He added: “Is this government trying to control everything?  I understand that they may want to limit the differential between the providers. Why doesn’t the government just come out and say, upfront  is 60 basis points and trail is 20 bps across the board? That way the banks then have no difference at all. Same with Insurance companies.”

Andrew Scott, general manager of Newpark Home Loans, said the industry is broadly in favour of greater transparency and improved consumer outcomes. But he warned heavy-handed treatment of commission could have “unintended consequences” for banking competition, and customer choice. "I'm all in favour of good customer outcomes, but I don't believe you can regulate that through controlling commissions."

Scott added: “I fear there’s a superficial understanding of how the industry works. That could have unintended consequences for the customer, and in the end, the customer will be the one to pay.” 

Tags: Financial Advice New Zealand financial advisers regulation

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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 ▼4.05 ▼3.95 4.39
ASB Bank Special - ▼3.55 ▼3.45 3.89
BNZ - Classic - ▼3.55 ▼3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 4.15 4.09 4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kiwibank 5.80 4.30 4.24 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.49 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 4.50 4.86 3.89 3.94
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.65 ▼3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.49 ▼4.29 4.85
TSB Special 5.29 3.69 ▼3.49 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - ▼3.55 ▼3.45 3.99
Median 5.34 4.05 4.02 4.05

Last updated: 21 October 2019 9:16am

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The maximum remuneration model for Australian life insurance advisers is to be set at what?

Upfront 40% + trail 20%

Upfront 50% + trail 10%

Upfront 50% + trail 20%

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Upfront 60% + trail 20%

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