Westpac brings back trail commissions
Westpac has broken ranks with the other big banks and reintroduced trail commissions for mortgage advisers.
Thursday, August 7th 2014, 11:59AM 
6 Comments
The reintroduction of trail commission is just one part of a wide ranging set of changes Westpac has announced today.
The over-riding theme of its changes are that it wants to change the way it deals with third party distribution and build sustainable partnerships with mortgage advisers.
Westpac director of third party banking Kylie Kneale says Westpac wants to “redefine the mortgage adviser market in New Zealand.”
In the past the bank had been seen as a “fair weather friend” of mortgage advisers and used the channel as a customer acquisition source.
Under the changes third party distribution will be treated equally with the other channels, mobile mortgage managers and branches.
Kneale says Westpac doesn't have its natural market share in the third party space, and it wanted to address this.
The bank consulted with 250 advisers and dealer group bosses as part of the process.
Several other changes Westpac is making are also designed to show its commitment to mortgage advisers. Under the current model it pays just $150 for a refix, but under the new model a 20 basis point trail commission will be paid on loans of two years or more.
It has also changed remuneration around signifcant restructures of debt. In the past any commission was discretionary. Now it is looking to pay 45 basis points upfront and a 20 basis point trail commission.
Westpac intends to pay an additional 15 basis point commission to groups as a "volume and conversion' reward.
Mortgage advisers have long complained that the removal of trail commissions and banks' attitudes to third party distribution were reasons why far fewer home loans are originated through this channel than in other countries. Currently around 25% of loans in New Zealand are originated by advisers while in Australia that number hit 50% earlier this year.
The changes have been welcomed by mortgage advisers. Edge Mortgages principal Glen McLeod says the changes aren't back to the future, rather they are the future of advisory industry.
He says the reintroduction of trail commission will help him do what he wants to do. He wants to build a book of clients and then advise them. Under the current model he has to keep finding new clients rather than spend time looking after existing ones.
Neither of the other two big banks which deal with mortgage advisers pay trail commissions. ANZ chief executive David Hisco told mortgagerates.co.nz earlier this year it is not something he would be doing. ASB doesn't pay trails, however its wholly-owned insurer Sovereign does pay trail commission to advisers.
Non-bank lender RESIMAC does pay trail commissions.
Kneale says new partnership agreements will be sent to groups and the changes will take place once these are signed. The existing agreements will be phased out later this year.
Key points
- Change to trail commission model
- 45 basis point up front commission and 20 basis point trail
- Commission incentive for higher conversion and volume
- Recognising advisers who consistently generate quality business
- Align targets across Westpac so that Third Party is an equally recognised acquisition channel
- Re-evaluate the partnership agreement to create relationships for the future
- To create a sustainable adviser market, invest in a robust accreditation and induction process, aligned with industry bodies eg. PAA
- Creating market-leading data insights for mortgage adviser performance
- Consulting with advisers on product development
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Comments from our readers
Westpac offering trail commission to mortgage brokers will not change the fact that on product they are out of step with the rest of the market i.e.
Westpac currently have the highest low equity costs of any bank in New Zealand. Westpac's low equity margin charged above 80% borrowing adds significant additional repayments each fortnight to a customer's loan compared to other banks and this low equity margin can be there for some time if property values stay flat.
Also Westpac's policy around additional repayments on a fixed rate loan is the least generous of any main bank. They don't even allow lump sum repayments during a fixed rate term when their competitors do.
So if I was a mortgage broker trying to justify my advice recommendation of Westpac as a lender to a client (something we should all be doing now) it certainly would not be for Westpacs products.
If Westpac think that dangling a trail commission as a carrot will suddenly encourage experienced brokers to give them more deals they are barking up the wrong tree.
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