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ComCom accused of being out of touch with the reality of mortgage advice

TMMO readers responded scathingly to accusations by the Commerce Commission that mortgage advisers are at risk of being “unduly influenced” by the commissions the banks pay them for placing mortgages.

Monday, March 25th 2024, 8:01AM 3 Comments

by Jenny Ruth

One adviser said that ComCom chair John Small's comments was yet another example of those at the legislative and compliance level having “absolutely no idea of reality.”

A number of readers objected to Small continuing to talk about mortgage brokers because legislation now deems them to be financial advisers and they are required to have passed Level 5 of the New Zealand Certificate in Financial Services before they can operate.

"Small should be made to go on a friggin Level 5 advice course so he knows what he's talking about next time someone from the media gives him a call".

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.

A number of advisers said legislation already mandates that they disclose commissions and the banks they can work with but that there is very little difference between lenders in how much commission they pay.

“The banks we can work with are disclosed in our disclosure statement,” one 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.”

Another said the majority of mortgage advisers “operate with integrity and are focused on the needs of their customers first.”

A number of advisers were less than complimentary about Small: “Someone small is trying to act big,” said one, while another said Small had been caught napping, “nay caught sleeping,” and had revealed his ignorance of how advisers operate.

A number also took issue with ComCom's call for Kiwibank to be provided with more capital so that it could act as a “maverick” disruptor of the major banks.

Small, as a government employee, was “biased” towards the government-owned bank, said one adviser while another said the fact that Kiwibank needs more capital showed “the government's experiment owning a bank hasn't worked.”

Tags: commerce commission

« Non-banks, banks welcome different aspects of ComCom draft reportAdvisers have consumers best interest: Finsure »

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Comments from our readers

On 25 March 2024 at 1:07 pm JeffQV said:
Yip, out of touch is putting it mildly. Having said that John Small has reached out to the industry and a meeting will take place soon with relevant stakeholders. Watch this space, as they say!
On 25 March 2024 at 3:07 pm valkyrie6 said:
Mr Small adviser Industry lesson number 1.
New regulation imposed by the FMA over the last 4 years created a licensing structure, (licensed Financial Advice Provider) basically no adviser can give financial advice without
a. having a FAP license or
b. being under someone else’s FAP license.
Sounds simple? No not really.
Lenders in NZ will not deal with individual Mortgage advisers directly and will only deal with “Dealer Groups “ ( essential middle- men) of which advisers are forced to belong to get access to loan products, the dealer groups or(now called Master FAPs) control what lenders and lending produces advisers have assess too and the lenders control what commissions are being paid via these groups /Master FAP’s.
These Master FAP” s/groups have a monopoly over what membership fees they charge advisers and basically if these fees are not paid the adviser cannot access the lenders.
Now a Dealer group or “Master FAP” are no more than glorified pay clerks, a middleman to collect commissions and pay them on to advisers.
Banks of course love this as its easier for them to pay all commissions to one dealer group and have them sort any claw backs for them. (yes, that’s right commission can be clawed back up to 27 months after loan settles).
But this gives dealers groups absolute control over membership fees, regulation training costs, their own internal lending and insurance product deals they negotiate behind closed doors and clip the ticket on all of it!
Monopoly? Maybe.
But it gets worse, because mortgage advisers are forced to operate under a Master FAP (even if the adviser has their own FAP license) they are also forced to comply with the Master FAP regulation requirements and then again for their own FAP regulation requirements, essentially being regulated twice.
This is over regulation in its craziest form Mr Small and will be the cause of many advisers leaving the industry all together so the consumers access to independent financial advice diminishes and more are force to go direct to one bank and get advice, if anything the ( in the respect of fair outcomes ,and championing for freedom of choice for consumers ) ComCom should be investigating Dealer groups /Master FAPS instead of promoting fund raising for its favorite one bank .
On 25 March 2024 at 3:24 pm Amused said:
I read today that The Commerce Commission has reported that fewer than half of banks’ new mortgage-borrowers pay the interest rates advertised. In its draft report on retail banking, the commission said banks gave interest rate discounts on home loans so commonly that about 50% to 60% of mortgage lending by dollar value was to people who got discounted loan rates. The discounts brought the rates paid by many borrowers below banks’ publicly advertised rates, while not alerting less experienced and price-sensitive borrowers that the advertised rates were just the starting point for negotiations. The discounts were most readily available to the highest value, lowest risk borrowers with certain desirable characteristics, including large deposits, and those considered to have high potential value to the provider, the commission concluded.

So, if approximately 50% to 60% of borrowers are now engaging a mortgage adviser for their home loan, doesn’t it follow that it’s these borrowers who are predominately the beneficiaries of the discounted interest rates being offered by the banks? Borrowers who deal directly with a bank are far less likely to receive a discount on their home loan rate (especially variable rates) whereas a bank that receives a home loan application via a mortgage adviser has to offer that borrower discounted rates as they know the adviser is aware of what’s available in the market in terms of current discounting. The presence of the mortgage adviser forces the lender to be competitive with the adviser being the borrower’s advocate in respect to the interest rate offered. This might explain why mortgage advisers are such a popular option now for so many New Zealanders. Even if the commerce commission can’t grasp the important advocacy role that mortgage advisers play the consumer clearly does.

Once again, the commerce commission demonstrates a failure to understand the industry that they have been charged with reviewing. ComCom chair John Small's comments about mortgage advisers just illustrate that being a numpty doesn’t preclude one from being appointed to a high paying role in the public service. It’s painfully obvious now to most New Zealanders that Wellington’s bureaucracy is overstaffed, inefficient and frankly incompetent.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 ▼6.75 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 ▼6.75 6.65
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 - 7.24 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 7.84 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 - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 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 6.69 6.45 6.19
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 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
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 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 8 April 2024 9:21am

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