Mortgage advisers remain at risk of being “unduly influenced” by commissions
The Commerce Commission says mortgage advisers are at risk of being “unduly influenced by their own financial interests” when providing advice.
Thursday, March 21st 2024, 9:54AM 
11 Comments
“This is a significant concern because taking out a home loan is likely to be the most substantial, long-term, financial decision many consumers make,” the ComCom said in its draft report on competition in banking services.
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.
The competition regulator said the four major banks act as “a stable oligopoly” and that Kiwibank and the smaller banks are constrained by lack of capital and by Reserve Bank capital rules.
Competition in the market is “sporadic” and not sustained for both deposit accounts and home loans, the two areas of banking the ComCom chose to concentrate on.
The banks have under-invested in their core banking systems and this is hampering competition, particularly in open banking and New Zealand is significantly behind in implementing open banking, it said.
The government should accelerate the implementation of open banking and have it fully operational by June 30, 2026, the ComCom recommends.
And ComCom sheeted home “high levels of profitability” among the big four banks to the lack of competition in the market.
“If competition was working well, we would expect the NZ banking sector to derive lower returns relative to riskier banking sectors overseas,” the draft report said.
ComCom blamed legislation such as the Credit Contracts and Consumer Finance Act (CCCFA) and the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) for hampering competition.
In particular, Small said the AML/CFT Act makes it difficult for some consumers to get basic bank accounts, particularly refugees, ex-prisoners, people fleeing domestic violence.
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“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,”
* The banks we can work with are disclosed in our disclosure statement.
"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 fees we receive from each bank are clearly stated in our disclosure statement which is provided at the beginning of the advice process.
Advisers confirm to customers how they get paid and from whom they get paid as the majority of their income is commission based with commissions varying from lender to lender.
The majority of mortgage advisers operate with integrity and are focused on the needs of their customers first ,as individual customer circumstances will be more suited to one bank than another.
Banks are very competitive as every aspect of banking and borrowing is negotiable.
Mr Small being employed via a government department clearly is bias towards a government owned bank but not everyone is comfortable with this as News Zealanders will remember when the tax payer had to bail out the Government own BNZ at the time , throwing more money at a Government owned enterprise that may or may not be standing on its own two feet is risky especially if that money has been borrowed and the tax payer is taking the risk.
Some say Kiwi bank should be sold and that Government departments should stop trying to pretend they can run profitable business using other people’s money.
We are paid the same and for any loan under $ 200,000 we lose money on
I wonder also how most New Zealanders really feel about the Commerce Commission recommending that the Government inject yet more capital into Kiwibank so that it can keep up with the other main bank players in the market? Kiwibank has always been capital-hungry but respectfully this is because of the way it has been managed and run over the years. The attitude of management has always been they can just go back to the Government for more money if needed. The fact that the NZ taxpayer is still having to prop them up after 20+ years illustrates that the Government’s experiment owning a bank hasn’t worked. New Zealanders have not seen a significant impact on the cost of borrowing money since Kiwibank’s arrival.
To say Kiwibank has a unique role to play in the NZ banking sector is false. New Zealanders should instead be supporting a locally owned bank like The Co-operative Bank which is owned by its customers and has shared with them $20 million since 2013 via rebates. As shareholders, Co-operative Bank customers can also have their say at their AGM and annual director election. This is a far cry from how Kiwibank is currently held accountable to NZ taxpayers.
As another contributor noted the bias coming from John Small towards another Government owned organisation is palpable.
Nothing in the article has an iota of truth. Someone small is trying to act big ,without appreciating the evolution the mortgage and insurance space has undergone in recent times. The industry could do without such commentary.
The Com Com should make him go on a friggin Level 5 advice course so he knows what he talking about next time someone from the media gives him a call.
Firstly there is no such thing anymore as a mortgage broker, it's mortgage adviser.
Secondly banks pay pretty much the same across the board so there is no 'incentive'.
Thirdly an adviser has to disclose to a consumer the banks and other lenders they deal with, before a customer makes a final decision and finally
All income derived from the transaction has to be disclosed to the customer.
One would have thought that comcom would have know these, Apparently not.
FSLAA and required disclosure requirements? Sounds like someone is asleep at the wheel
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First and foremost, the legislation THEY set has prescribed that we ar NOT brokers (we do npt handle clients money), we are Financial Advisers!
Second, it is in our disclosure statements (also, as prescribed by the legislation) of who we can and cannot recommend.
Third - the difference in commission payments between banks (that we ALSO have to disclose) is very little, and certainly doesn't make any difference to who we recommend. More importantly, it is the bank that is easiest to deal with from the clients perspective that will get the most business. Commission rates wouldn't make much difference at all.
At the end of the day, all the bureaucracy and finger pointing doesn't make a lick of difference. All the client wants from their ADVISER is finance to purchase their home, at the best deal, and a structure that best suits their specific situation.