Advocacy over shouting leads the way

FANZ is advocating foremost for its own business not the mortgage adviser industry. If FANZ was the real advocate for our industry which they claim to be then they would have come out publicly in the last five years to say mortgage advisers shouldn’t be going through any of the regulations forced upon us.

The regulatory changes introduced for mortgage advice businesses in New Zealand are not appropriate for the risk profile associated with the advice that we provide our clients for a home loan. Mortgage advisers do not handle client funds & most of the time our advice is free with us being remunerated by the lenders directly. Many advisers would argue that the “red tape” has driven up compliance costs and benefits Wellington regulators more than it does borrowers. Then we have the subject of Aggregator Monopolies with most banks refusing to deal with individual advisers directly. Advisers with their own FAP licences are being forced to belong to "Master FAPs" or aggregators. This forces them to pay steep membership fees and comply with duplicated regulatory layers. When have we ever heard FANZ or FAMNZ pushing back on this?

At the end of the day associations like aggregators are businesses. A large part of why both FANZ and FAMNZ have not challenged the amount of overregulation that has occurred for mortgage advisers is because both associations have a commercial interest in attempting to control the training of mortgage advisers. FAMNZ even went as far as attempting to lobby the government to make membership of a professional association mandatory sighting adviser education standards.

When we look at the recent live example of a main bank lender deciding to change its adviser renumeration model which has seen some advisers being significantly short-changed commission for earlier loans settled I have not once heard FANZ or FAMNZ directly challenge the bank in question on this. This lender is perfectly entitled to change the way it renumerates advisers however it cannot now renege on commission that was promised previously for loans settled. If there was ever a time where associations needed to be "shouting" about something that a bank has done to our industry then this is it. How can mortgage advisers possibly believe that associations are advocates for our industry when the above has been allowed to go unchallenged?

When it comes to professional bodies been voluntary organisations it’s all about demonstrating value and relevancy. Associations have been shown to have no teeth with the lenders and next to zero recognition by the NZ consumer. With licensing’s arrival it was telling that the Financial Markets Authority didn’t made membership of an association compulsory to provide financial advice and none of the lenders in New Zealand require an adviser to be an association member to hold accreditation with them. Mortgage advisers in New Zealand now account for 55%+ of all the new lending business the banks write annually, and we got there without any help from associations thank you.

If you are joining an industry body but their representation and collective voice are weak or inactive, you are paying for an empty brand.

I agree. "...FANZ’s advocacy for its members that has led the way over the past couple of years...."

What?? Led the way with what? We're forced to be members of aggregators who can increase charges and add rules as they see fit and in some cases are direct competitors.

Banks can flout basic contract law with impunity.(offer made and accepted money changes hands should bind the contract)

They call us an acquisition channel but charge clawback when they can't keep their own clients acquired through us.

If anyone should shout it should be the associations or the aggregators because individual advisers face retaliatory risk.

Banks deal with us because they want the business we can send them but the truth of the matter is they would be much happier if there was no such thing as a mortgage adviser

Yea, Hamish, you hit the nail on the head. I was horrified the way that lady laid into the banks for processing times, as if shouting loud ever helped. We build bridges individually every day and she was not scared to tear them down.

Does anyone know when banks introduced the requirement that a mortgage adviser must belong to an aggregator in order to distribute their product?

Was this prior to March 15th 2021?

Any relevancy industry bodies like FANZ had left for mortgage advisers vanished the moment they decided not to challenge Westpac on the way in which it has ceased adviser trail payments. This process will see many advisers being short-changed now for commission previously promised to them but according to Mr Patel advisers should not be shouting about it.

For years mortgage advisers have probably wondered what it is that professional bodies do for our industry. Well, the answer is obvious. Nothing.

@Paul Flood
So it’s been compulsory for mortgage advisers to belong to a master FAP (dealer group) for at least 25 years now, 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 licence holders) to be compliment under their header FAP essentially treating other FAP licence holders as authorized bodies under the group licence.

What does this do? it basically doubles the amount of regulation a single FAP licence holder has to do as they are repeating regulation requirements twice under their own licence and then again under the header group licence.

This may not be what the FMA intending licencing to be but for most FAP license holders they are wondering now why they all just didn’t go under one header licence and be done with it then the FMA would only have a small few FAP licences which in turn would defeat the whole licencing function, one aggregation group already told its members that all existing FAP licence holders should cancel their licenses and go under theirs as this is what the lenders and regulators want ! , they even increased the monthly group fee for only FAP license holders as a deterrent !.

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 licence.

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.

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 and to most advisers these Master FAPs groups add no value apart from being glorified pay clerks.

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 , and kiwi saver schemes all charged to or force upon the adviser with dealer groups clipping the ticket.

Advocates for advisors I think not.

I think the comment about FAMNZ inappropriately shouting about it is not fair. They were stepping up and sticking up for Advisers when others weren't. I am a member of both FANZ and FAMNZ and FANZ lifted their game slightly when FAMNZ started rattling the cage.

In an industry when Banks dictate to us the terms, give us the raw deal on commission (not naming names) having an organisation jump up and down on our behalf was a good thing.

I'm still a supporter of FANZ as I believe every adviser should belong to the industry body(s) regardless on whether it's compulsory.

@valkyrie6 – thanks for confirming my understanding, which was that the “aggregator membership” requirement from banks significantly pre-dates FSLAA. I can appreciate the challenges presented by going from obligations pre-FSLAA to a double-whammy of FSLAA obligations.

The grubby backhanders you describe in your final paragraph notwithstanding, I can see the attraction of the current arrangement from the banks’ perspectives. And I’m not entirely unsympathetic to the view that it provides enhanced consumer protection when compared with the more direct FAP-Financial Institution arrangements in other corners of the industry. FMA expectations about oversight of intermediaries are pretty tame in relation to what aggregators might require, at the granular level.

In the recent case of Saanvi 2022 (t/a Saaga Mortgages), it was KAN that referred the matter to the FMA. I think that is noteworthy. Of the 99% of mortgage FAPs that are compliant with their own license requirements, how much of that compliance is due to improvements embedded by needing to comply with aggregator requirements? I’d wager it is greater than 0%.

That leaves a barrier to advice problem: the consumer who goes directly to the bank, choosing ease of implementation over the value of independent advice from someone who is not part of a vertically-integrated organisation*. That’s where the likes of FANZ fits in the picture, I think, in a public-advocacy role (and not in the middle of commercial disputes).

(*There’s a niggling worry that, at a certain level of abstraction, the financial services industry as a whole resembles a VIO.)

Hi Paul

As someone else has mentioned it’s been a lender requirement now for at least 25 years for a mortgage adviser to belong to an aggregator for us to be able to send the banks loan applications on behalf of our clients. I spoke with an auditor last year though and he made me aware that there are now individual advisers operating within the industry who have direct relationships with the banks bypassing the need for them be part of an aggregator.

All the main banks announced prior to licencing’s introduction in early 2021 they would agree to deal with any adviser who obtained their own FAP licence directly from the FMA. The banks need to honour this earlier commitment made to the industry because the current Aggregator Monopoly has advisers with their own FAP licences being forced to belong to "Master FAPs" aka aggregators forcing advisers to pay steep membership fees and comply with duplicated regulatory layers which sees the adviser now being treated like an authorised body which they are not.

Having a main bank now moving away from paying trail and short-changing some advisers in the process is the watershed moment for our industry. This bank is perfectly entitled to change the way it pays for business from advisers however it cannot renege on an earlier renumeration agreement signed which said for new loans settled BOTH an upfront and trail payment would be forthcoming. Any half decent lawyer could convince a judge that by law corporates must always honour written agreements which they sign, especially one which involves somebody's income for new business received.

Part of the current problem for the mortgage adviser industry is that all deals done between banks and aggregators are done behind closed doors. We are expected to simply trust the aggregators that they have our backs but clearly, they didn’t when they first negotiated the earlier renumeration agreement with this lender. That the bank in question has now been allowed to get away with the above because aggregators (and industry bodies) have not challenged this decision legally illustrates once and for all that the third parties who are supposed to be our advocates only care about their own business models. Aggregators do not want to rock the boat with the banks because they all want to safeguard their current monopoly of controlling advisers’ access to the various lenders.

I believe it’s only a matter of time now before the Commerce Commission and FMA forces the banks to break up the current Aggregator Monopoly with banks honouring what they all pledged to do originally i.e. have direct relationships with those mortgage advisers that have their own FAP licence now. This will replicate the adviser/provider model which already exists in the insurance industry. Monopolies when they are allowed to persist harm the consumer. There will likely always be an aggregator presence within the NZ mortgage industry however the moment advisers are experienced enough to work under their own FAP licence (why wouldn’t you want to) they will be able to avoid having to comply with duplicated regulatory layers and not having to pay an aggregator's membership fee to simply get their commission passed along to them from the banks once a week.

P.S. industry bodies have been silent on the current Aggregator Monopoly. Why?