FMA to review CoFI Guidance

Hewes reiterated that CoFI and the financial advice regime were deliberately designed to operate side-by-side, not hierarchically.

That's a fun re-write of history right there. The design ended up the way it after what I will call 'passionate engagement' from the entire adviser sector calling out the catastrophic first draft which did not look at all like "side by side" nor for that matter did it look like a hierarchy.

What it looked like was a bloody venn diagram with all of our conduct obligations caught in the middle!


Forgive me if I LOL at "not intended to create new requirements".
Have we not had quite enough UNINTENDED CONSEQUENCES over the last decade or so?

Conduct of Financial Institutions (CoFI).

Yes, it all sounds great in principle folks however the new law change fast becomes a bad joke when civil servants employed at the FMA aren't doing their jobs enforcing this law on the banks.

Senior bankers must currently be laughing at their ability now to force consumers to decide same day regarding their interest rate on a home loan via the mortgage adviser channel since the introduction of rate cards. The same thing goes for any bank customer currently offered new rates online when refixing.

Historically home loan customers have always had a minimum of 2 business days to make an informed financial decision regarding their interest rate and loan structure. Now going via the mortgage adviser channel customers have to decide same day or risk an interest rate increase. Essentially consumers who choose to use the services of a mortgage adviser are now having a gun held to their head by the banks when it comes to deciding how long to fix their repayments for.

Sorry but I just can’t take a government agency seriously when they let the above example of bad financial institution conduct continue unchallenged and yet still lecture advisers about “good consumer outcomes”. The above would be like insurance companies suddenly providing offer of terms but now requiring customers to accept the insurer’s offer of cover same day.

So, it’s time then to make a few politicians in Wellington aware of what is happening on this subject. I think Labour and the Greens will love to embarrass the government learning all this. Been an election year I can’t imagine that the FMA is going to be very popular with the government and maybe we’ll finally see a few civil servants been held to account for a change.

Most mortgage advisers are currently being overregulated which in turn is affecting consumers using their services and here’s why.
Let take the average Mortgage adviser that has their own FAP license.
99% of these advisers will be compliant with their FAP license requirements and taking time and effort to meet their FAP requirements which is great and better for the industry.
But because the banks and lenders will only let a select few have Header agreements or Header FAPs with them directly all the other FAP; s are forced to belong to one of these header FAP’s.
These Header FAPs are forcing all its members (including FAP license holders) to be compliment under their header FAP essentially treating other FAP license holders as authorized bodies under the group license.
What does this do? it basically doubles the amount of regulation a single FAP license holder has to do as they are repeating regulation requirements twice under their own license and then again under the header group license.
This may not be what the FMA intending licensing to be but for most FAP license holders they are wondering now why they all just didn’t go under one header license and be done with it then the FMA would only have a small few FAP licenses which in turn would defeat the whole licensing function.
How does this effect the consumer?
Over regulated Advisers have to pass a lot of this onto the customers they engage but bank staff do not, so is it in the banks best interest to push more regulation requirements onto advisers? maybe. Some customers rather that read and compete a 42-page form will just go direct to a bank branch with no advice given.
The Master/header FAP agreements groups have with lenders is their sole strong hold /monopoly over mortgage advisers.
Dealer groups /master FAP holders, also create behind the scenes referral structures based on bulk referrals by their members, where the groups receive back-office referral income that are not disclosed to the advisers let alone the public or the customer , these include forced training , file reviews , PI insurance schemes , house and personal insurance referrals , all charged to the adviser or dealer groups clipping the ticket.
Advocates for advisors I think not.

I'm no longer in the business of mortgages, having sold that entity in the early 2000s. But that seems a big call, valkyrie6. "99% of FAPs compliant". Is that anecdotal or actual data from a credible source?

Last year, I spent several weeks assisting a mortgage adviser who consistently failed compliance checks. I don't believe for a moment that he is unique in that regard.

In my experience, this approach served as a safeguard prior to the adviser's accountability to the FMA, despite appearing as excessive reporting to his aggregator.

I think the real question that advisers should be asking is, 'What value is my aggregator providing?' They all seemed rather quiet when Westpac pulled their trail again. How much is a CRM worth, and what value am I receiving with the perceived scale they offer?

"Most mortgage advisers are currently being overregulated"
"a mortgage adviser who consistently failed compliance checks"
Could it be the compliance "experts" put unnecessary cones for the mortgage advisers to maneuver to make them look useful? I understand the added extra cones are out of FMA's control.

@ John Milner - to answer your question 'What value is my aggregator providing?' the answer for any mortgage advice business which has its own FAP Licence is “very little indeed.”

The aggregator model simply does not work now within the context of a mortgage adviser having his or her own FAP licence and been able to provide financial advice under their own name.

Aggregators may well add value to newcomers to the industry but once an adviser is experienced, they do not need to be working under an aggregator’s FAP licence. Despite what aggregators might say publicly experienced mortgage advisers do not need the support of an aggregator now to operate successfully within a licenced industry.

As valkyrie6 has correctly noted aggregators currently hold a monopoly over all mortgage advisers’ access to the various lenders who have essentially been treated like authorised bodies which advisers with their own FAP licence most certainly are not. We have this ridiculous title now which has emerged from the banks themselves of “Master FAP” to describe the various aggregators which has no legal relevancy to the financial advisers Act. Aggregators are simply Class 2 FAP licence holders which many larger mortgage advice businesses or one-man bands looking to expand one day already are themselves.

That fact that insurance and investment advisers with their own FAP licences do not need to belong to an aggregator illustrates that the same also needs to apply to the mortgage advice industry. The FMA has said previously that it’s a “commercial decision” of banks to demand mortgage advisers all belong to an aggregator, well that excuse doesn’t wear anymore sorry. As mortgage advisers have witnessed over the past 18 months aggregators are no longer our advocates with the banks with many instead been focused on their own businesses. They do not push back when the banks disadvantage mortgage advisers and our customers for fear of losing their monopoly over the adviser industry.

I recently watched a fascinating documentary on Netflix about the evolution of the dinosaurs and how the ultimately meet their end. Like with anything in life species on this planet evolve and so do business models which come and go. The aggregator model once appropriate for all mortgage advisers in New Zealand now needs to applicable only to those advisers new to the industry. Mortgage advisers holding their own FAP licences need to be dealing directly with the banks now and cutting out the middleman aka aggregators.

P.S. when it comes to the associations they also have had their day in the sun in terms of the value been provided to the mortgage adviser industry. I’m all for mortgage advisers having and belonging to an industry body that can be a strong advocate for us, but the reality is associations have not been in our corner with the lenders and the regulators when we needed them. Mortgage advisers don’t handle client funds, yet we are now treated by the FMA like investment advisers. I never once heard FANZ say to the code committee and regulators at the time that our industry was unique in terms of the type of financial advice mortgage advisers provide and hence, we should not be thrown in the same boat as insurance and investment advisers. Given the above is it any wonder that so few mortgage advisers are now association members. That the mortgage advice industry has been overregulated and advisers must spend time away from helping their clients now unnecessarily ticking boxes to keep Wellington bureaucrats employed is an absolute travesty. Consumers who engage the services of a mortgage adviser have not been the primary beneficiaries of regulation. Instead, it’s been the compliance and education sector that have seen the benefits which are primarily financial. This is not what regulation is supposed to be all about.

It's hard to argue with any of the points raised by Amused, Valkrie6 and WK above.

The arguments about holding your own FAP licence and having to belong to an aggregator are fair. If there is no benefit to having to manage your own FAP licence, and then belong to an aggregator or group then you have to question why the banks insist on it.

On the topic of the influence that aggregators can bring, I think that the banks seem to be a law unto themselves and the only influence aggregator groups bring is where their advisers can and will place business. What other leverage does the aggregator group really have over the decisions a bank makes? Yes, they can talk to the FMA but they aren't going to be able to change commission schedules if they are built into contracts that they can be changed.

Westpac's recent commission change, and the recent advertising and social media plays by BNZ and ASB via their in-house acquisition teams reveal an intent to drive business away from advisers and into a direct channel.

I think the banks see Open Banking as way to acquire business at a lower cost and are positioning themselves for this.

With the exception of one or two banks, the message seems to be that many of the lenders just don't value advisers and the work they do despite Adviser business making up over 50% of their new business.

If you want more proof, ask yourself this - why have banks been offering a 24-48 hr turnaround for direct business, but can only offer 10 day turnarounds for adviser business? And they intentionally don't divert resources from direct channels into adviser channels to provide a universal service standard.

The only way advisers (and in turn aggregator groups) will have any influence is if they do not place business with the banks that don't want to support them and offer them a fair service standard.

Maybe there is an answer in aggregator groups lobbying the FMA for universal service standards but i'm fairly certain the banks would find a work around for that..

As you say John you haven’t been working in the mortgage advice industry for a while so perhaps it might interest you to learn that the DRS stats clearly show us complaints made against mortgage advisers are currently negligible. Those complaints that are been made mainly relate to advisers attempting to obtain lost commission from their clients for clawbacks that they have received from the banks. Many of us are getting a bit tired of the people who work as compliance “experts” having a financial interest in pushing the narrative that there is a problem with the advice been provided by mortgage advisers. There is no problem. PI cover is consequently dropping in price at least for the non-aggregator PI schemes. The naysayers John were wrong.

W K has said the goal posts for advisers appear to keep on moving. I agree. Education and compliance businesses are constantly looking for new ways to generate revenue and to try and remain relevant when the mortgage adviser industry is having so few complaints made against it. I’ve been marketed to by an education company who at significant cost are encouraging me to complete some of their new courses because they think I should be doing these to be complaint with my FAP license holder requirements. None of these though are required by the FMA. None. The education company has a financial agenda and conflict of interest based on the several emails and voicemails that they have now sent to me.

When you add the “behind closed door” arrangements that aggregators and associations currently have with compliance and education companies and these are bought into the sunlight the question then starts to be asked by mortgage advisers who is benefiting the most from regulation? It’s not the industry or our customers.

Just an Opinion: I 100% agree with your comments, all we want as advisers is an even playing field, no more no less.The banks continuously treat third party banking as a threat and there are many examples of the double standard , for example , branches can hold new interest rates for customers for 24 to 48 hours where advisers cannot now, adviser generated rate pricing can change at any time .

Thank you, just an opinion & valkyrie6.

Thank goodness, I left the mortgage industry over 10 years ago. Just a question - Are the mortgage aggregators and banks in cahoot or something?
I used to just present to the lender client background summary, purpose of loan, proposed loan structure, the securities, ID and financials. Sometimes, have a chat with client's accountant or lawyer (with permission, of course). Then it's up to the lender to seek more information, accept or decline. Couldn't understand why an aggregator is needed to clip the ticket?

valkyrie6: Yes, I've heard complaints about the education provider who pushed for unnecessary courses. We all know which one, and so do the regulator.

PI cover - when it was not compulsory, I paid $890 a year. Then it was made compulsory, my premium became $2350 or 2.64Xs. Why? Managed to find one this term for just under $1800.

@ Just an opinion

Well said. In terms of advisers having influence on the banks behaviour, I believe the industry does not need though for aggregator groups to be involved to accomplish this. The aggregators are all businesses competing against one another for more members. Because of this they don’t act in the best interests of the industry as a whole. Aggregators do not give business to the banks, it’s their members (mortgage advisers who operate their own businesses) who do this.

Mortgage advisers have all been fed the same line about “strength in numbers” by the aggregators for 20 years now and it’s proven to be false advertising. The banks have about as much respect for the aggregators as they do the associations. Westpac has shown us all that.

The mortgage adviser industry in New Zealand has been disadvantaged now because of the aggregator model which has been focused on cementing aggregator’s own businesses not on the banks offering advisers a fair service standard for our customers.

I am not saying that all mortgage advisers should be without an aggregator, not for one second. However, advisers who operate under their own FAP licence I believe in the majority if given the option now would welcome the opportunity to be dealing directly with the banks.

I keep coming back to the fact that insurance advisers with their own FAP licence don’t need to belong to an aggregator to deal with the insurers. From all accounts this model works very well for both the provider and adviser. The same needs to also apply now to the mortgage advice industry. When you are a business owner who has been licenced by the FMA to provide financial advice in your own name the fact that you are still being forced to belong to a third-party business (which has no responsibility over the advice you provide) then there is something seriously amiss.

Business models come and go as industries evolve. With our industry now licenced many experienced advisers leapt at the opportunity to be independent licenced advice businesses. Why on earth then are mortgage advisers still been forced to be part of a third-party business which only benefits that third party’s business commercially. This must change.