Mortgage fraud and advisers’ commissions under the FMA microscope
The Financial Markets Authority (FMA) is going after advisers and FAPs who flout its rules and pose significant risks for borrowers.
Tuesday, June 30th 2026, 7:49AM 
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by Sally Lindsay
Picture: FMA Chief Executive Samantha Barrass (Supplied)
The FMA has identified four themes it will prioritise over the next year across the sectors it regulates.
These include managing conflicts from renumeration structures; banks’ and non-bank deposit takers’ design of new and redesigned existing products; the use of complaints to drive improvement; and fraud detection and prevention, specifically in relation to mortgage and insurance fraud, and the fraudulent use of KiwiSaver for first-home withdrawals.
The themes represent important areas where a phased, multi-year approach is likely to be necessary to support improved consumer and market outcomes, the FMA says.
Fraud is the most complex area, where both lenders and borrowers can be victims; even borrowers who are apparently complicit may themselves be victims of manipulation or deception, the FMA says.
It involves:
- Mortgage fraud – this involves deceit or misrepresentation during the process of obtaining, funding, or insuring a mortgage loan, such as by using false property valuations, income or employment details, or other financial information.
- Fraudulent use of KiwiSaver first-home withdrawals – this involves deceit or misrepresentation to access KiwiSaver funds for a first-home purchase, for example, claiming eligibility criteria are met even though they are not, or funds not being used for their intended purpose.
- Insurance fraud – this involves deceit or misrepresentation in the process of obtaining, underwriting, or claiming on an insurance policy. It can include providers taking out insurance policies for dead or fictitious policyholders (tombstoning) or failing to disclose information that is relevant to underwriting assessments, such as pre-existing health conditions or family history.
The regulator has ongoing active investigations into alleged mortgage fraud, which it says it will progress with the aim of holding "bad actors" to account and deterring others from such conduct.
In the past year it also sent a letter to FAP mortgage aggregators and professional adviser associations, as well as banks and non-bank deposit takers, outlining its concerns about mortgage fraud and setting out a list of “red flags” to help them detect and respond to fraud risks.
FMA chief executive Samantha Barrass says this focus builds on the previous priority relating to consumers in vulnerable circumstances, where we were concerned about a rise in fraudulent activity in relation to financial advice on mortgages and life insurance products.
We continue to receive complaints and reports of potential mortgage and insurance fraud involving financial advisers and FAPs.
Mortgage fraud can result in consumers experiencing unmanageable debt, loss of property, and long-term financial stress, she says.
In the coming year the FMA says will continue to support FAPs to detect and respond to fraud risks by strengthening its existing information channels to improve the timeliness and quality of fraud reporting, including through enhanced engagement with providers, aggregators and dispute resolution schemes.
Commission-based business models pose risks
Hovering over mortgage advisers is another of the FMA’s priorities – managing conflicts from renumeration structures.
A majority of FAPs and financial advisers in New Zealand work on commission-based models.
While the FMA says these models can improve access to advice, they carry risks for borrowers that need to be managed.
The regulator says while its regime provides the framework to ensure clients’ interests are prioritised, the regulator says it continues to get reports of misconduct and fraud motivated by high upfront commissions.
As part of the FMA’s previous priority focus on fees, it identified inconsistent disclosure practices across the sector, particularly in the disclosure of the actual commission payable to both the FAP and the individual adviser, and in the treatment of clawbacks where advice does not proceed or products are replaced early.
Barrass says ongoing monitoring has highlighted a wide range of business and remuneration models across the sector, including specific features in some that pose a greater risk of poor consumer outcomes.
“Gaps were identified in FAPs’ recognition of vulnerability indicators and advice processes, resulting in poor advice outcomes.”
This includes the sale of unsuitable products and inappropriate replacement business driven by commission incentives.
The FMA’s access to advice review also identified that certain commission structures can, at times, prioritise new business over the servicing of existing clients.
Barrass says focusing on this area will support the regulator’s longer term objective of ensuring incentives across the sector are commensurate with the service and/or product provided.
“We are aware of instances of unmanaged conflicts leading to poor or unsuitable advice, inappropriate replacement business and fraudulent activity.”
It will focus on ensuring FAPs have effective processes and controls in place to manage conflicts of interest arising from commissions, and to detect and deter misconduct that may be incentivised by commission-based relationships. This includes misconduct arising from both upfront commissions and ongoing commissions.
“Where we see mis-selling of products we will take appropriate action using our full range of regulatory tools,” Barrass says.
Agreements between product providers, such as banks, insurers and fund managers, including expectations set in those agreements and how FAPs may influence conduct and regulatory compliance, will also be part of the FMA’s focus.
There will also be emphasis put on whether disclosures clearly explain the nature of ongoing services and related remuneration, so consumers can readily understand what to expect from their financial advice provider over time.
This will include responding with more serious interventions to hold bad actors to account and provide credible deterrence of further misconduct where the FMA identifies significant disclosure gaps.
AI and innovation
FMA acting chairman Steven Bardy says as the country is in an environment of significant uncertainty and heightened risk globally and domestically this reinforces the importance of a robust, well-functioning financial sector that is resilient.
He sees technology transformation becoming an even more important driver of efficiency, competitiveness, resilience and the consumer experience in the financial sector.
“New Zealand is in the early stages of developing a modern digital financial system and rolling out its building blocks, including open banking standards, consumer data rights, and digital identity services.
“The FMA recognises the importance of embracing innovation, and an area of increasing focus for us is the role of artificial intelligence (AI) in the financial system.”
It’s review will look at the use of AI in financial advice to better understand how it is used in practice, the associated conduct risks, and the safeguards firms have in place.
From the regulator’s access to advice review, it identified an opportunity for growth in digital advice, but it also highlighted that many firms are adopting an unnecessarily cautious approach to innovation.
“There is an opportunity to build greater confidence across the sector in how the responsible adoption of innovation can support good consumer outcomes,” Bardy says.
The FMA will consider its findings from the review and whether there are opportunities to share practical insights with industry on applying AI within technological innovation.
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Comments from our readers
To pick just one issue: It looks like the life insurance industry might be faced with further commission reform. There are plenty of signposts pointing in that direction (including current work on affordability).
3 days ago, the FMA started recruiting for a newly-created role, Principal or Senior Analyst – Conduct Risk, for the next phase of the Business Model Assessment work programme. My prediction: the quantitative work will establish statistically-significant relationships between remuneration models and poor conduct/customer outcomes.
In the life insurance space, the last time we saw detailed quantitative work in this area was 2016-2018. (Incidentally, yesterday marks the 10-year anniversary of the release of the first pair of reports on replacement business practices in the AFA/RFA distribution channel.) That work resulted in remuneration reform (“soft dollars” gone for the most part, prohibited incentives under COFI).
Are the days of high upfront commissions numbered? Maybe. Another prediction: the quantitative work will establish that the level/as-earned commission structure has a lower “hazard ratio” than high upfront + low trail model, with something like the Australian model sitting somewhere in the middle.
Unlike a majority of FAPs, insurers would likely welcome a move away from high upfronts, but no-one wants to be the first mover in this direction. This first-mover problem was identified in the 2015 Trowbridge report as requiring policy intervention to solve in Australia, but I don’t know that this would be needed here. The policy intervention may have already occurred, in the form of COFI.
Insurers might quietly be hoping that the research shows high upfronts present an unacceptable risk of FCP breaches, in which case their hands are forced. This solves the first-mover problem, and removes anti-competitive concerns that might arise in an all-mover situation.
All purely speculative on my part.
When banks axe trail & advisers have built their business on that it's clear there is a disconnect.
Before the FMA launches into these assumptions again, how big is the problem given the size of the adviser population?
In any industry you will have bad actors. There are already penalties for this behaviour. Any fool writing tombstone business must likely be relatively new and assume this is new thinking. Insurers now have great technology for capturing this now. Likewise in the mortgage space.
Why again when the majority of the adviser population is functioning within the law and adviser, supplier relationships are functioning professionally should a regulator determine based and ongoing assumptions about commission consider stepping in and regulating.
We have just had to absorb the ongoing costs of regulation, some of it overcooked, and now the threat of reducing revenue again because some bad actors appeared. Then the FMA will stupidly ask the question again, why aren't people getting financial advice. We are not social workers or volunteers, we are trying to run professional businesses.
What is the problem they are trying to solve... start with that. Do we already have tools to take care of bad actors? We have rules on how to pay commission and incentives. We have rules on suitability and also replacement business. Is enforcement the issue?
Trail commission was never introduced by banks to encourage ongoing client service, care, and support. Trail was introduced as a retention incentive. Plain and simple. These banks offered advisers a reduced upfront commission compared to others but dangled the carrot of an increased commission overtime the longer the adviser kept their client’s loan with the bank paying them a trail payment.
Westpac have stopped paying trail to mortgage advisers on new loans, yet they are continuing to pay trail to customers who source a home loan directly from Westpac via Dosh. Dosh offers no advice to customers and are not providing ongoing client service, care, and support. Why then has Westpac decided to continue paying Dosh customers a trail payment? Well obviously, they are being incentivised by the bank to remain with them as long-term home loan customers.
Partners Life spat the dummy and quit the FSC, claiming the report was biased against the RFA channel and the commissions payable to that channel. Whether that was the real reason Partners quit we might never know, but there is an interesting reference in the Addendum to the Terms of Reference of the MJW report to “the interpretation of claims vs commission ratio for a new insurer which significantly misrepresents the issue.”
I completely agree with you when you write: “What is the problem they are trying to solve... start with that.” Clearly defining the problem is the first step. Only then does it even make sense to ask, as you do, “how big is the problem given the size of the adviser population?”
The “claims” problem that ruffled feathers following the MJW draft report might be one of the harms to be looked at. Medical insurance data would be very helpful here, given this is where claims and non-disclosure issues arise most frequently.
The Partners Life dataset would be interesting, because there was a period between September 2012 and September 2016 where they had stopped paying upfront commission on medical, with as-earned the only option. Does that four-year cohort of policies have a lower incidence of non-disclosure than the upfront cohorts on either side?
What else is interesting about that commission change? It resulted in a decrease in new business volumes leading to a restructure in 2013 that claimed 8 jobs. Maybe commission structures do have an effect on adviser behaviour?
I'm reasonably convinced that Trowbridge and MJW were commissioned (!!) and conducted research with pre-set conclusions seeking so-called supporting evidence - the exact opposite of the Taylor Report and of any impartial, objective, and reliable qualitative research.
At a subsequent private PAA (now FANZ) meeting, MJW offered three reasons why product providers and Advisers should accept their findings -
1. Commission levels were unsustainable (not so - reinsurance funding relieved the ceding office of new business strain and had minimal impact on year 1 retail premiums.)
2) Bancassurance products were more profitable (of course they were as the reduced cover paid less claims than intermediated products).
3) The NZ Life Industry was not providing adequate Return on Capital - 10% minimum suggested by MJW (unfortunately for MJW, the day before the meeting, A M Best had produced their annual analysis of the NZ Life Insurance industry which confirmed ROC just over over 10%. Of course, MJW disputed the report - well, they would wouldn't they?)
The absence of proper, integrity-driven research-based evidence was apparent in both reports and should neither should have seen the light of day.
I advised the late Peter Neilson not to put his signature on the MJW report but he charged ahead and saw not only Partners leave but also AMP, Sovereign, and Fidelity threaten to do likewise.
Within the 12 month notice period to leave ISI (now FSC), an acceptable compromise was reached and MJW report was set aside. Not so in Australia with the drastic reduction in specialist risk advisers leaving consumers with only basic financial protection provided via their superannuation providers.
I fervently hope we avoid repeating the Australian experience based on questionable research.
Among the recommendations of the MJW report was a recommendation for an industry-wide replacement-policy process. You made a similar suggestion around 10 years ago, in your submission on the FAA 2008 review Options paper. You added a nice twist: the adviser would have to submit the business case for replacement to both the receiving and departing insurers. Diabolical!
My pushback on MJW and Trowbridge was based on the lack of qualitative credible evidence. Whether high upfront commissions create actual harm to consumers has yet to be demonstrated.
My personal preference has always been for a salaried Adviser distribution model with the employing FAP negotiating the same agreed remuneration from every Life Office. This eliminates accusations of product bias at licensee level and provides the individual adviser with a clear path to full and easy-to-understand disclosure. Structured properly, the stimulus for new business acquistion and properly looking after existing clients works in the interests of all parties.
But the lack of substantive evidence on the commission issue is a concern as the elimination of business models based on unreliable research does not increase, or even maintain, consumer access to qualified financial advice.
As for my earlier suggeston on replacement business - I agree, 'twas a dastardly plot to solve an issue which has been raised again in the FMA's 2026 FCR. Once again, churn is mentioned but with no supporting evidence presented. The two-way declaration of transfer seemed to be an elegant solution.
Would your view change if you knew that the banks will not give individual FAPs access and will only deal with a limited number of aggregators and an individual FAP was therefore required to join one of these FAP aggregators?
If the banks are limiting competition this way, should the RBNZ or FMA be interested?
Partners was receiving (as many new insurers used to) an influx of replaced business in the early stages. Cynically I do think many new insurers look the other way and would claim no inducement or encouragement during those times. Some advisers will rationalise movement during this time with claims of customer benefit. I do think we have a better approach now. My observation is many senior or skilled advisers are very careful when considering any replacement and will try and avoid replacement for obvious reasons.
I think the major point is as David has mentioned many times is previously (and I totally agree), "unreliable research" has been presented as a solution looking for a problem. The problem must be clearly defined always.... otherwise you get like the Green Party who say we need to get rid of cows without thinking about the consequences to the country.
I believe most of the experienced mortgage advisers operating under their own FAP licence would choose not to have to belong to an aggregator if they were given the choice. Currently though mortgage advisers are being told they don’t even have the option. Insurance advisers holding their own FAP licence can have direct relationships with the insurers so why doesn’t the same apply to the mortgage adviser industry? Again, the banks have previously signalled that they would agree to this prior to the introduction of licencing. The reality is that the current status quo is a monopoly with aggregators controlling mortgage advisers’ access to the various lenders.
It’s hard to believe that in 2025 those mortgage advisers who now hold their own FAP licence are still having to belong to something called an “aggregator” just so they can submit a loan application on behalf of their customers to one of the banks. Any mortgage adviser who backed themselves to run and operate his/her own FAP licence did so with a view to eventually have a direct relationship with the banks without any aggregator involvement. Some industry commentators have said they are still to be convinced that not been under an aggregator's FAP licence has a huge benefit for a straightforward advisory business - well the huge benefit is we won't eventually need to pay an aggregator money just for the privilege of being able to submit a mortgage application to one of the banks for our customers.
There will always be a need for the aggregator model in New Zealand as it still holds relevance to mortgage advisers new to the industry, but experienced operators providing advice under their own FAP licence are likely wondering what it is now that aggregators still do for us aside from passing along our commission once a week. Gone are the days of aggregators been the single source of PI insurance and anybody can now purchase a fit for purpose CRM right off the internet which is ISO security compliant and has the added benefit of not being controlled by the aggregator themselves. From a “risk” perspective there is also statically far less likelihood of a complaint happening for a 1–10-person mortgage advisory business holding its own FAP licence than this business been an authorised body among many others working under an aggregator’s licence.
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https://www.fma.govt.nz/assets/Reports/Access-to-advice-Consumer-research-findings.pdf
And then join me in congratulating the FMA on their recent enlightenment - realizing the commission itself is not the actual problem.
"emphasis put on whether disclosures clearly explain the nature of ongoing services and related remuneration, so consumers can readily understand what to expect from their financial advice provider over time.
This will include responding with more serious interventions to hold bad actors to account and provide credible deterrence of further misconduct where the FMA identifies significant disclosure gaps."