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Mortgage advisers remain at risk of being “unduly influenced” by commissions

The Commerce Commission says mortgage advisers are at risk of being “unduly influenced by their own financial interests” when providing advice.

Thursday, March 21st 2024, 9:54AM 11 Comments

“This is a significant concern because taking out a home loan is likely to be the most substantial, long-term, financial decision many consumers make,” the ComCom said in its draft report on competition in banking services.

Commission chair John Small told journalists that while he didn't think brokers are ignoring customers' needs, he is concerned about inadequate disclosure of the conflicts of interest they face.

“We know that any given broker will work through an aggregator platform and will have access to some banks but not all banks. I'm not sure if you went to a mortgage broker that they would tell you that,” Small said.

“From the broker's point of view, they will get different amounts of money from different banks. I'm not sure when you go to a mortgage broker that they would declare that to you,” he said.

The ComCom is recommending that the Financial Markets Authority, the financial markets conduct regulator, should monitor this sort of disclosure more closely and that it should issue guidelines for brokers.

The competition regulator said the four major banks act as “a stable oligopoly” and that Kiwibank and the smaller banks are constrained by lack of capital and by Reserve Bank capital rules.

Competition in the market is “sporadic” and not sustained for both deposit accounts and home loans, the two areas of banking the ComCom chose to concentrate on.

The banks have under-invested in their core banking systems and this is hampering competition, particularly in open banking and New Zealand is significantly behind in implementing open banking, it said.

The government should accelerate the implementation of open banking and have it fully operational by June 30, 2026, the ComCom recommends.

And ComCom sheeted home “high levels of profitability” among the big four banks to the lack of competition in the market.

“If competition was working well, we would expect the NZ banking sector to derive lower returns relative to riskier banking sectors overseas,” the draft report said.

ComCom blamed legislation such as the Credit Contracts and Consumer Finance Act (CCCFA) and the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) for hampering competition.

In particular, Small said the AML/CFT Act makes it difficult for some consumers to get basic bank accounts, particularly refugees, ex-prisoners, people fleeing domestic violence.

Tags: commerce commission

« Liberty Financial wins tax appealNon-banks, banks welcome different aspects of ComCom draft report »

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Comments from our readers

On 21 March 2024 at 10:42 am Andy the adviser said:
This is yet another clear example of those at the legislative and compliance level have absolutely no idea of reality!

First and foremost, the legislation THEY set has prescribed that we ar NOT brokers (we do npt handle clients money), we are Financial Advisers!

Second, it is in our disclosure statements (also, as prescribed by the legislation) of who we can and cannot recommend.

Third - the difference in commission payments between banks (that we ALSO have to disclose) is very little, and certainly doesn't make any difference to who we recommend. More importantly, it is the bank that is easiest to deal with from the clients perspective that will get the most business. Commission rates wouldn't make much difference at all.

At the end of the day, all the bureaucracy and finger pointing doesn't make a lick of difference. All the client wants from their ADVISER is finance to purchase their home, at the best deal, and a structure that best suits their specific situation.
On 21 March 2024 at 10:50 am Stoploss said:
What a poor article and this shows poor understanding from the Commerce commission chair. Aren't we all Advisers now as well ???

“We know that any given broker will work through an aggregator platform and will have access to some banks but not all banks. I'm not sure if you went to a mortgage broker that they would tell you that,”

* The banks we can work with are disclosed in our disclosure statement.
"From the broker's point of view, they will get different amounts of money from different banks. I'm not sure when you go to a mortgage broker that they would declare that to you,” he said.

*The fees we receive from each bank are clearly stated in our disclosure statement which is provided at the beginning of the advice process.
On 21 March 2024 at 11:15 am valkyrie6 said:
Not sure where Mr Small has been over the last 4 years as the Mortgage adviser industry ( not called brokers anymore) has gone through massive regulation and all advisers are required by law to provide customers with a term of Engagement, Disclosure statement and privacy Statement, these are not new and have been in play for decades now.

Advisers confirm to customers how they get paid and from whom they get paid as the majority of their income is commission based with commissions varying from lender to lender.

The majority of mortgage advisers operate with integrity and are focused on the needs of their customers first ,as individual customer circumstances will be more suited to one bank than another.

Banks are very competitive as every aspect of banking and borrowing is negotiable.

Mr Small being employed via a government department clearly is bias towards a government owned bank but not everyone is comfortable with this as News Zealanders will remember when the tax payer had to bail out the Government own BNZ at the time , throwing more money at a Government owned enterprise that may or may not be standing on its own two feet is risky especially if that money has been borrowed and the tax payer is taking the risk.

Some say Kiwi bank should be sold and that Government departments should stop trying to pretend they can run profitable business using other people’s money.
On 21 March 2024 at 11:55 am Jonny Good Guy said:
Com Com are corrupt and crap , they can't even achieve anything for NZers
We are paid the same and for any loan under $ 200,000 we lose money on
On 21 March 2024 at 12:31 pm Amused said:
100 percent in agreement with the views expressed above. You really do throw your hands up in despair reading these comments from The Commerce Commission and its Commission chair John Small. The taxpayer currently funds the Commerce Commission to the tune of $87M annually and this is what we get from them. How many times have we now seen the Commerce Commission fail to understand the industry that they have been charged with reviewing? It’s yet another example of Wellington bureaucrats on big taxpayer funded salaries who are not adding any value to the country.

I wonder also how most New Zealanders really feel about the Commerce Commission recommending that the Government inject yet more capital into Kiwibank so that it can keep up with the other main bank players in the market? Kiwibank has always been capital-hungry but respectfully this is because of the way it has been managed and run over the years. The attitude of management has always been they can just go back to the Government for more money if needed. The fact that the NZ taxpayer is still having to prop them up after 20+ years illustrates that the Government’s experiment owning a bank hasn’t worked. New Zealanders have not seen a significant impact on the cost of borrowing money since Kiwibank’s arrival.

To say Kiwibank has a unique role to play in the NZ banking sector is false. New Zealanders should instead be supporting a locally owned bank like The Co-operative Bank which is owned by its customers and has shared with them $20 million since 2013 via rebates. As shareholders, Co-operative Bank customers can also have their say at their AGM and annual director election. This is a far cry from how Kiwibank is currently held accountable to NZ taxpayers.

As another contributor noted the bias coming from John Small towards another Government owned organisation is palpable.
On 21 March 2024 at 12:48 pm SKMAN said:
This is laughable. Someone has been hiding or living under a mushroom,for all we know. The mortgage adviser industry has undergone a sea change and someone has been caught napping,nay caught sleeping.

Nothing in the article has an iota of truth. Someone small is trying to act big ,without appreciating the evolution the mortgage and insurance space has undergone in recent times. The industry could do without such commentary.
On 21 March 2024 at 1:04 pm Frank Adviser said:
What an appalling article and lack of knowledge is being spouted by John Small. As Advisers we have so many checks and balances to justify any recommendations we makes it's just insane.

The Com Com should make him go on a friggin Level 5 advice course so he knows what he talking about next time someone from the media gives him a call.
On 21 March 2024 at 1:09 pm JeffQV said:
Interesting draft report and full, if I may say so, of errors.

Firstly there is no such thing anymore as a mortgage broker, it's mortgage adviser.

Secondly banks pay pretty much the same across the board so there is no 'incentive'.

Thirdly an adviser has to disclose to a consumer the banks and other lenders they deal with, before a customer makes a final decision and finally

All income derived from the transaction has to be disclosed to the customer.

One would have thought that comcom would have know these, Apparently not.
On 21 March 2024 at 6:05 pm JPHale said:
Just a small question, has Mr Small and ComCom been asleep for the last 5 years?

FSLAA and required disclosure requirements? Sounds like someone is asleep at the wheel
On 21 March 2024 at 10:02 pm two cents said:
Mr. Small is obviously unaware of the ethical considerations and, disclosures and recommendations required for every financial advice client. Why are you featuring this buffoon, TMMOnline?
On 22 March 2024 at 2:18 pm Aggressively_passive said:
Can't wait for the regulatory responsibilities for our sector to be taken off the numpties at MBIE and twats like this. Clearly this guy is far too well paid to ever stoop to engaging a qualified and registered and licensed and DRS'd Adviser (and all the other expensive things we pay for). More like Private Banking I would guess.

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Lender Flt 1yr 2yr 3yr
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 - - -
Bluestone 9.24 - - -
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 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
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
Lender Flt 1yr 2yr 3yr
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 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

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