The Auckland-based adviser has responded to a discussion document released by the Ministry of Business, Innovation & Employment as part of work to develop regulations within new financial advice laws.
MBIE has proposed that advisers make information about the fees they charge, such as commission, publicly available. MBIE has previously said “consumers will benefit from being aware of these commissions and incentives".
In his response, seen by TMM, Patel said he feared the proposals would not be “fair” for advisers. He said the move would favour lenders providing direct mortgages, as they would not be forced to disclose their own fee structures, thus appearing cheaper to the customer.
Patel’s response was made in a personal capacity and not on behalf of the Financial Advice NZ lending advisory committee, of which he is a member.
Patel said: “A broker like me under the new regime may disclose that to obtain a 4.5% on a home loan it will cost the bank .65% in commissions. The client could go to the bank direct and it would seem that the home loan would cost 4.5%, with no mention of [the] associated costs. Under both scenarios, the cost to the client is 4.5%.”
He added the disclosure proposals would favour New Zealand’s big banks: “If disclosure is only required for one channel say, advisers, this may skew things towards the lenders and banks who are able to pay higher salaries but do not rely heavily on pay per performance.”
Patel said he was in favour of disclosure regarding “the variance in commissions from different lenders”, as well as advisers. He added: “Perhaps there is a simple way to do this by explaining the percentage difference in the first 2-year period. This is important as some lenders pay less upfront and pay higher ongoing commission.”
Patel urged MBIE to consider whether the proposals would be “fair” on advisers: “The consumer should be able to compare the costs of various channels in a fair way. There should not be the appearance that one channel is more expensive when the end cost to the consumer is the same.”