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NZ will be "balanced" on commissions and won't single out mortgage brokers

Thursday 14th March 2019

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The New Zealand government says it won’t single out mortgage brokers and that its approach to commission payments will be “balanced.”

That follows the Australian Federal Government’s decision earlier this week to cave on the royal commission recommendation to ban lenders from paying trail commissions to mortgage brokers.

When Kenneth Hayne delivered his report and 76 recommendations in early February, the Australian government quickly backed away from the recommendation to ban the payment of up front commissions to mortgage brokers, the only recommendation it said it wouldn’t implement.

But it did undertake to ban trail commissions, payments spread over the life of a mortgage, usually paid in addition to up front commissions, from July 2020.

But earlier this week, Australian Treasurer Josh Frydenberg said, in what Australian newspapers are calling “a stunning backflip,” that his government will instead hold a review into whether trail commissions should be kept.

New Zealand Commerce and Consumer Affairs Minister Kris Faafoi says his government will release a consultation document in May that will ask about the structure of commissions paid by banks and insurers to financial advisers, insurance agents and mortgage brokers.

“Unlike Australia, we are not singling out mortgage brokers from the rest of the financial advice industry,” Faafoi says in a written answer to a question from BusinessDesk.

“Some forms of commission are better than others for ensuring good consumer outcomes – soft commissions, for example, can strongly encourage advisers to prioritise their own interests over that of their clients,” he says.

“We need to take a balanced approach that considers how we ensure good outcomes for consumers and retain access to good quality financial advice.”

The Australian Competition and Consumer Commission and the Council on Federal Financial Relations, a body made up of state and federal treasurers, will conduct the Australian review.

The backdown followed a sustained campaign by mortgage brokers and it didn’t hurt that Mark Bouris, the founder of mortgage broking business Wizard Home Loans and another financial services company, Yellow Brick Road which he still chairs, is a friend of Australian Prime Minister Scott Morrison.

Most mortgage brokers who want to exit the industry have little to sell, other than their trail commission books and their client lists – something much harder to value than a certain income stream.

Mortgage brokers in Australia, and smaller lenders who depend on those brokers for distribution because they lack the branch networks of the larger banks, had argued that the ban would reduce competition and lead to greater concentration of the financial services industry.

There are about 17,000 mortgage brokers in Australia who account for nearly 60 percent of all mortgages written in that country and are paid more than A$2 billion a year in commissions.

The amount of mortgages New Zealand brokers write is unknown because most banks regard their dealings with brokers as a closely guarded secret.

Most observers would agree they are less dominant in New Zealand but could still account for more than 40 percent of all mortgages.

Bank of New Zealand, which is owned by National Australia Bank, does disclose its figures.

It resumed dealing with mortgage brokers in 2015 after 12 years of refusing to have anything to do with them and, by September last year, mortgage brokers accounted for more than 15 percent of BNZ’s mortgage book.

The big four Australian banks own New Zealand’s big four banks which accounting for about 88 percent of our banking system.


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