What is the role of advisers in promoting competition?
Mortgage associations FAMNZ and FANZ have welcomed and applauded the Commerce Commission’s (ComCom) report into competition in the personal banking services today.
The final report comes five months after ComCom’s draft report, which was unanimously slammed by the mortgage industry with some labelling it “baffling and embarrassing”.
The 389-page report, which Nick Hakes, chief executive officer of Financial Advice New Zealand (FANZ) called “bold and far reaching”, makes several recommendations, including strengthening potential “maverick” Kiwibank to increase competition with major lenders and standardising clawbacks on commissions to make it fairer for advisers.
Importantly, ComCom updated its view on the role of mortgage advisers in the industry, recommending advisers should become “champions of price competition” while continuing to “provide holistic financial advice”.
“It is encouraging to see the recognition of the important role professional mortgage advisers play in driving competition, innovation, and good outcomes for consumers,” said Hakes.
The difference five months can make
The report is a backflip from ComCom’s initial assessment of mortgage advisers in its draft, which said that while advisers have the potential to be pro-competitive, they are “unduly influenced” by the commissions paid by lenders.
The government agency also implied advisers have a tendency to stick with established lenders and there was weak oversight to ensure advisers prioritise their clients’ best interests.
In March, Leigh Hodgetts, country manager of the Finance and Mortgage Advisers Association of New Zealand (FAMNZ), called the draft report a “product of the commission’s lack of engagement with our sector”.
Since then, the Commerce Commission engaged in several meetings with both associations along with other representatives from the mortgage industry to better understand the way advisers work.
ComCom chair John Small had also reportedly apologised to advisers on LinkedIn.
“It is pleasing to see that in this report the commissioner stated that mortgage advisers can add considerable value to borrowers,” she said.
“I feel like they’ve listened to our feedback and now understand how mortgage advisers contribute to competition and better outcomes for consumers. It’s a good news story for us.”
Hakes also acknowledged there has been a “big shift” in terms of the adviser’s role after actively engaging with the Commission.
“The advice sector has been engaged pretty heavily through the process,” Hakes said.
“I think there’s recognition of the work the industry has done to build awareness and understanding of that critical role within the landscape that licensed, quality mortgage advisers play for consumers.”
Beyond price matching: The value of mortgage advisers
Hodgetts said that after much engagement with the commission, “it’s clear a better understanding has been gained as to how mortgage advisers support pro-competition in the market and provide more choice and advice to consumers when it comes to borrowing money.”
However, she pointed out that there are still issues about which the commission is confused, including how mortgage advisers come to the final recommendation for borrowers.
“The statement that ‘mortgage advisers should also put more emphasis on price’, is in some ways irresponsible, as every borrower is different,” Hodgetts said.
“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 the Commerce Commission needs to move away from focusing solely on pricing, something that mortgage advisers have no direct control over.
“We can make things competitive for the borrower by negotiating with lenders, which is where mortgage advisers add real value,” Hodgetts said.
“It’s not just about matching; it’s about giving advice, understanding the customer’s needs, and finding the best fit for them.”
Hakes agreed that mortgage advice goes far beyond just the price but felt the Commerce Commission now understands this point.
“We took some great examples of mortgage adviser businesses from around the country to the Commerce Commission and they did a great job at demonstrating how they used their expertise, knowledge and skill to find the best solution for the client.”
What’s next: Onus on lenders, further clarification needed
While the final report has landed, both associations agreed that the work is far from over.
Hodgetts said FAMNZ will continue to educate the Commission through ongoing engagement and called on the banks to act on the report.
“The ball is now in their court and advisers will continue to put the interests of consumers first and play an important role in assisting Kiwis with mortgages and other loans.”
Financial Advice New Zealand said it would be seeking clarity on the recommendations specifically impacting mortgage and lending advice as the detail will determine whether there are unintended consequences that could counteract competition in the banking services market.
“In consultation with our members and strategic advice partners, we support positive steps to improve accessibility and affordability, enabling more consumers to confidently seek the expertise and professional judgement of a mortgage adviser,” the association said.
FANZ will then liaise with policymakers and regulators to ensure that what comes to market puts consumers and financial advisers in the best position to achieve the most suitable solutions.
“Some of these recommendations will take time to wash through the system. What it doesn’t diminish though is if you’re a Kiwi and you need to go and seek advice, you won’t see these changes today,” Hakes said.
“You’ll need to seek out a mortgage adviser to help you today even though there’s some longer-term, structural recommendations that the Commerce Commission has put forward.”
