We have published a number of articles recently critical of the conflict of interest that mortgage brokers ("mortgage advisers") have in their relationships with banks and clients. We offered the FAMNZ an opportunity to respond. This is it.
Let’s move with the times and make New Zealand stronger
By Leigh Hodgetts*
While New Zealand is a minnow in terms of the world’s nations, we are respected across the world due to our maturity, stability and participation in major international forums. We even punch above our weight in many areas including our wine and movie industries.
Yet in the world of banking, finance, lending and mortgages, we can and must do better. We need more competition in the mortgage field and greater education in financial literacy in order for New Zealanders to receive the economic benefits of living in this great country.
When you are in “the system” as I was for many years, it is easy to accept the status quo without question. But late last year I stepped out of the establishment to join a new, innovative and maybe even a slightly disruptive association called the Finance and Mortgage Advisers Association of New Zealand (FAMNZ).
I bought into their vision that the mortgage system in New Zealand needed an injection of energy and change, and that finance and mortgage advisers offered so much more than many people realised.
Yet there was no specific representation for this sector, no clear direction, and little public acknowledgment of the huge benefits mortgage advisers bring to consumers.
More startling, as we saw in the recent draft report into personal banking by the Commerce Commission, was that even some government agencies lacked this knowledge.
Despite this, around 50% of New Zealanders use a finance and mortgage adviser for their mortgage, which tells us that our advisers are doing an excellent job even without anyone advocating at the highest levels for them.
Imagine what we can achieve with a dedicated advocacy peak body whose goal is to raise industry standards, increase consumer awareness, help mortgage advisers do more business, and drive greater market competition.
The winners will be the New Zealand public and the New Zealand economy.
But before we can achieve these aims we must engage in better education around who finance and mortgage advisers are and what we do.
Advisers have indicated they are ready for a new chapter, but it is clear that some well-meaning but misinformed people are stuck in the past.
I don’t blame them for their lack of understanding because they are in the system and think that’s all there is.
This misinformed commentary has primarily been around conflict of interests, competition, and disclosure; yet finance and mortgage advisers have far more strict criteria than lenders. Let’s face it – a bank can’t offer you competition and neither can it act in the best interests of the borrower, because it is selling a product.
Finance and mortgage advisers are required to use the term 'Financial Adviser' under the FMCA. They are not considered brokers in New Zealand, and therein lies a problem. It dilutes our role by confusing us with other types of advisers.
That’s why FAMNZ is on a journey to lift the public profile of our industry. Finance and mortgage advisers deserve this.
Mortgage advisers are registered on the Financial Service Providers Register, which means consumers can check that an adviser is legitimate and licensed to provide advice.
They are also well trained and have required professional development plans in place that ensures ongoing training on products, compliance, ethics, regulation, legislation requirements and financial advice skills.
Mortgage advisers are required to follow a six-step advice process and provide advice to retail customers to help them achieve their goals with property and finance matters. They are required to act in the best interests of the borrower, and they do.
A recent report by the Financial Markets Authority's (FMA) noted that advisers often recommend that clients borrow less than the amount for which they are approved in order to support affordable loan repayments, demonstrating advisers favouring clients' interests rather than trying to maximise commissions.
Mortgage advisers are also more transparent than many others in the lending sector. During the advice process they are required to disclose how they are paid, what they are paid, what lenders they can recommend, and how they operate.
This information helps consumers decide up front whether they wish to deal with the adviser and continue the process.
All financial advisers are required to operate under a licensed financial advice provider, are regulated by the FMA, and must comply with the requirements of the code. The code imposes statutory duties on anyone giving regulated financial advice to retail clients, requiring them to comply with prescribed standards of ethical behaviour, conduct, and client care.
Mortgage advisers might operate small businesses but they are all required to be aligned to an aggregator group (such as Loan Market Group, Finsure, or Kiwi Adviser Network) who checks their files, provides policy to follow, pays their commissions and generally acts as the intermediary between the adviser and the lenders.
The sector has moved ahead over the past four years in preparation for licensing, which has now been in place for just over a year.
Can our industry do better? Of course we must always be striving to do better, which is part of the reason for the establishment of FAMNZ.
FMA is currently monitoring advisers and the aggregator groups and will be releasing guidance in June to explain what they are seeing and what's working well.
The market share has increased in New Zealand due to organic growth which is a point the naysayers must acknowledge. Customers are sharing positive stories and recommending finance and mortgage advisers to others.
We must keep in mind that in Australia, finance and mortgage brokers write over 70% of mortgages, and research by Agile Market Intelligence found that 86% of Australian mortgage broker clients trust their broker.
The research found that this trust directly leads to long-term and repeat business, with 83% of mortgage broker clients stating they will continue to turn to a broker for assistance with their next mortgage application.
The vast majority of Aussie borrowers can’t be wrong. Yet in New Zealand some just don’t get it. Maybe they don’t like progress or maybe they are so entrenched in the “system” that they have lost perspective.
We need a more competitive lending environment in our country, and finance and mortgage advisers drive this. FAMNZ will drive this like no one else because no other industry group is exclusively invested in our sector.
The entry of Kiwibank into the market meant that accredited advisors have been recommending their products and this has led to growth of introduced business to lenders overall.
Other smaller banks are following suit, with Co-Operative Bank about to wind back their branch lender capabilities and focus on growing their external mortgage adviser channel for more efficiencies and better customer outcomes.
Let’s get with the times New Zealand. Let’s drive competition, help Kiwis prosper and boost the economy.
Finance and mortgage advisers are not the entire solution, but we are part of it. As we provide first class service, act in our customers’ best interests, and lift our market share, the winners will be consumers.
It is the goal of FAMNZ to make this happen, and if we have to disrupt a few things along the way – including some old-fashioned attitudes – we will.
*Leigh Hodgetts is the NZ Country Manager, Finance and Mortgage Advisers Association of New Zealand (FAMNZ). Leigh is a respected industry leader and has previously held senior roles at Astute Financial Management NZ, ANZ, BNZ, Kiwi Adviser Network, FANZ, and FMA.
13 Comments
Why did the brokers so vehemently lobby against the findings of the Royal Commission in Oz which recommended commissions be paid by the customer not the banks? Because they knew that they'd have to demonstrate impartiality and value for money for the service.
Unless you're paying for it, there has to be a conflict of interest.
Because paying for advice meant only the very wealthy could afford it. As is happening in Australia with the "no commissions" rules
Five years ago, Australia had 28,000 financial advisers. Today there are 16,000. That’s according to a review of financial advice commissioned by the previous government and released by the Albanese government last week.
Thousands of advisers are leaving the industry each year. The ones that remain are charging far more than they used to – $3,710 is said to be common, up 48% in five years, and enough to turn many people away.
https://theconversation.com/australians-need-good-financial-advice-more…
I don't know, I found the mortgage advisor very useful.
1.They did a lot of ground work that would have taking me ages and i just didn't have time for.
2.They got me a higher offer than my current bank did (even a higher offer from the same bank!).
3.They negotiated with the bank and increased the offer by 5%
If it wasn't for the broker my situation might not have been possible, I'm very thankful for what they did.
"We need a more competitive lending environment in our country, and finance and mortgage advisers drive this."
I wonder if creating more transparency on banks pricing would help with this, more than having mortgage brokers? How often have you asked a bank what their best rate is, only for a mortgage broker to be able to easier beat it?
There are many Mortgage Brokers in Nz that are clipping the ticket several times with the same borrowers.
They charge a big upfront fee and put it thru second tier lenders who also pay the broker.
Then after a year or two they put the loan with another lender and clip the ticket again!
Personally would not go near a broker who is getting paid by the lender and borrower and charge excessive interest rates .
The Banks want to lend so no need to pay any application fee, get a discount on the carded rate.
Having dealt with a number of financial advisors, I was unimpressed with the shallowness of knowledge: a couple actually looked alarmed or at a loss when I wanted to talk about things like asset class allocations with my ageing, and the beta on the investments. Not reassuring.
I also think what we have here is a lack of trust that the advisors will act in the best interests of their client, rather than what's easy and profitable: sadly, the New Zealand way
And seriously: if an investment's arrangement - or even a mortgage(!) - is so complex you need an interpreter of some description, is it a good idea? A lot of moving or invisible parts to go wrong.
Some of those are fair points, it just depends on which Financial Adviser you talk to. Mortgage & Insurance advisers can't make recommendations on your Investment Portfolio, but if you talked to an Investment Adviser, then I agree they should know the bare-bone basics such as asset class allocations, investment alphas & betas, retirement plans etc.
Regarding trust, we can see an up-lift in the % of people working with advisers, however, it will never get to 100% as evidenced in mature markets like UK & US.
Similar to filing taxes - inherently it's not complex for the average self-employed person and they can file it themselves. Yet an entire industry of accountants exists in the Business Advisory space which helps SMEs navigate this. The difference with accounting is that the consumer pays them first and there are no commissions in that industry so perhaps that's where the mistrust exists.
Removing commissions will remove any 'perceived' bias, but accessibility will vastly reduce where only the wealthy would benefit. Challenge is, there is no systemic evidence of foul play in NZ. So any perceived bias is just that.
We can't trust banks to pass on any savings as their first duty is to their shareholders. All it leaves are individual consumers and Mortgage Advisers pushing for the best outcomes for the client.
Possible solution could include a level commission across the industry. Reducing up-front commissions, but retaining a trail to cover fee for service makes the most sense.
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