BNZ has announced changes to its upfront commission, its trail commission payment and its clawback tiers.
From 1 February 2018, it is increasing upfront commission from 45 basis points to 55 basis points.
At the same time, it is decreasing trail commission from 20 basis points per annum to 15 basis points per annum.
However, payment of trail commission will now commence one month after drawdown on the loan(s) introduced or restructured by an adviser.
It is also reducing its clawback tiers from four tiers to two tiers. If a loan is repaid within 0-14 months (from drawdown) there will be 100% clawback and if the loan is repaid within 15-28 months there will be 50% clawback.
BNZ head of third party Adam Ward says the aim of the changes was to simplify the commission structure and processes for their adviser partners.
"It is all about delivering better outcomes and simplifying things for our brokers and streamlining the process for our staff as the business continues to grow and expand.”
Ward says that before making the changes they looked at the domestic and Australian markets and consulted with a number of individual brokers.
No further changes are planned, he says.
While the increase in upfront commission has been well received by the industry, it is the changes to trail commission which have really pleased some advisers.
SuperCity Mortgages managing director Joel Oliver says it’s a fantastic change because it means there is no need to forecast a year ahead and then follow it all up 13 months later.
“There’s quite a high percentage of remuneration in that first year going from the first month. Essentially, BNZ is remunerating for ongoing service to your client and one of our main drivers is mortgage servicing.
“It’s great to see BNZ acknowledging the third party contribution with the increase in upfront commission and it backs up what they have said about being happy to be in the market.”
He believes the changes will make it easier for BNZ to maintain clients as it incentivises advisers and this could have an impact on the cashback culture that currently exists in New Zealand.
“It puts a bit of pressure on other banks to do the same, so it will be interesting to see if other banks eventually follow. But many of the Australian banks have had this type of trail model in place for some time.”
Loan Market’s Bruce Patten agrees, saying the changes will be very beneficial for managing trail commission.
“The 13 month model is good in theory but in practice it is a logistical nightmare and is quite onerous. It’s much better to track trail every month. This makes it much easier.
“The trail commission might be a bit less but it builds up if you are going to be managing that client for some time. So it rewards advisers for good management of their clients.”
Patten doesn’t think the changes are earth-shattering, but says they are fair to both advisers and to the bank and a fair reflection of where the market is sitting.
“BNZ probably now have the most balanced commission structure. By moving to this model it makes BNZ more competitive. It will probably generate more business for them.
“It will be interesting to see how other banks react to this, whether they make any changes to their commission structure.”