Association responds to FMA CEO comments
The Finance and Mortgage Advisers Association of New Zealand (FAMNZ) has welcomed the opportunity to continue to engage with the Financial Markets Authority (FMA) following comments from FMA chief executive Samantha Barrass (pictured far left).
Barrass told the Financial Services Council NZ conference that the regulator would respond to the Commerce Commission’s banking report and the commission’s concerns about transparency in mortgage advice.
FAMNZ country manager Leigh Hodgetts (pictured centre left) said the association looks forward to showcasing what advisers bring to the market and what is needed from the banking sector that will bring greater benefit to consumers.
It comes as the FMA is scheduled to take authority over key parts of the regulatory landscape that affects lenders and advisers, such as the CCCFA, which Barrass commented on last week.
Hodgetts said, because FAMNZ are New Zealand’s representative on the International Mortgage Brokers Federation, “we can speak to the way the third-party channel operates across the world and what is needed in New Zealand to ensure that consumers here benefit.”
Should New Zealand follow Australia’s best interests policy?
The role of advisers in the process of mortgage lending has been a topic of discussion by different regulatory bodies throughout the year.
In its draft report on competition in personal banking published in March, the Commerce Commission initially drew the ire of the mortgage advising industry, insinuating that advisers are “unduly influenced” by commissions by administering mortgage advice.
However, after extensive industry consultation, the commission has appeared to change its tune on mortgage advisers, calling them “champions of price competition” in its final report in August.
While the final report was generally welcomed by the mortgage industry, many of the Commerce Commission’s recommendations were not.
For example, Hodgetts pointed out that the Commerce Commission report, which used the Australian model as an example, displayed a lack of understanding of New Zealand regulations around mortgage advisers.
In Australia, mortgage brokers have Best Interests Duty (BID) – a fiduciary obligation that requires mortgage brokers to act in the best interests of their clients when providing credit assistance.
While that principle may seem like something to strive towards, Hodgett explained the difference between the two markets:
“Australian mortgage ‘brokers’ provide various offers to customers because they cannot give advice; whereas New Zealand mortgage advisers operate under a license to provide financial advice to retail customers,” Hodgetts said.
Should advisers be made to recommend three products?
Another key point of issue is whether mortgage advisers should be considered “champions of price competition” at all.
Hodgetts and FANZ director Nick Hakes had previously discredited the Commerce Commission’s statement that advisers should put more emphasis on price.
“While the interest rate is important, there are many other factors around individual circumstances that must be considered when a consumer takes a loan,” Hodgetts said.
However, the ComCom report stated, “We do not accept that price (or cost more broadly – acknowledging the long-term nature of home loans) should not be the number one priority for lenders and mortgage advisers”.
Furthermore, the ComCom report recommended that, where possible, advisers should present at least three actual offers when advising a home loan client.
Award-winning mortgage adviser Sarah Curtis (pictured centre right) rolled her eyes after finding out the government will implement this rule.
“Honestly, it feels like no one’s listening – so let me make it super clear,” Curtis said on LinkedIn.
“We do not deliver recommendations based on price because it is very likely the least important thing to clients. Correct structure is much more important—most main bank providers match the rates and cash contributions on offer.”
See LinkedIn post here.
Others are calling out the arbitrary nature of the recommendation.
Hodgetts agreed, “We consider several lenders and their products to arrive at a recommendation, and while in many cases the adviser may provide various options, in some cases, there may be only one.”
For example, another mortgage adviser Andrew Kay (pictured far right) – who thinks the three-offer rule is “unpractical, time consuming and will clog the banking system” – gave a scenario to illustrate why the recommendation won’t work.
“I am working on an application now for Australian based customers,” Kay said on LinkedIn. “Only one bank treats AUD income differently to others, so naturally that's where the application will go, because it's more favourable than others.
“Why would I spend more time and effort on other lenders who I know have less favourable policies on overseas income?”
See LinkedIn post here.
Should advisers be made to go off-panel?
Finally, the Commerce Commission recommended mortgage advisers should highlight gaps in their panel to clients and identify any superior headline rates offered by providers outside of their panel.
Hodgetts said it was unrealistic for advisers to list all lenders “not on their panel” as there is such a wide variety of lenders for different purposes.
“Again, the Commerce Commission doesn’t really understand how the sector works, although we commend them for spending time to better educate themselves recently and look forward to further dialogue.”
She said mortgage advisers already drive competition as, “without them, a few large banks would control almost all of the market which would be a terrible result for consumers and competition.
“Banks are of course unable to advise consumers of what other banks are offering. Only mortgage advisers act in the best interests of the consumer and their individual circumstances and do the work to provide the best outcome for customers.”
