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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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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
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Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.74 7.74 7.09 6.95
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Lender Flt 1yr 2yr 3yr
Westpac 8.64 ▼7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - ▼6.89 6.75 6.39
Median 8.64 7.14 6.82 6.65

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