Should advisers have to disclose who they don't work with?

The Commerce Commission has asked whether advisers should have to tell clients which lenders they were not accredited with, as is mandated in Australia.

The Australian Securities and Investments Commission (ASIC) requires mortgage advisers to disclose which lenders they did not deal with.

Speaking at the the Commerce Commission's three day conference on competition in banking mortgage adviser Sarah Curtis spoke in favour of "negative disclosure" - that is disclosing lenders an adviser does not deal with.

Leigh Hodgetts, country manager for the newly formed Finance and Mortgage Advisers Association of New Zealand, said she had worked in Australia before coming to New Zealand 13 years ago and that “I would hate us to go down that road.”

ASIC's rules are “very prescribed and over-prescriptive.””

“You're trying to fix something that I don't see as broken at all,” Hodgetts said.

Other speakers noted that there are about 40 lenders in New Zealand but that most lending was done by the five largest banks.

Commerce Commission chairman John Small said that the commission had been surprised that interest rates and pricing doesn't appear to be the focal point of competition for mortgage advisers “which strikes us as unusual for a service that's all about comparing” rates and pricing.

Mortgage adviser Patricia Marsden and several other advisers noted that the conversation with a client may begin with interest rates but that pricing between the banks is usually much the same and that the banks move quickly to match sharp new offers from a competitor.

“Once you've shown that to a client, it takes rates out of the equation.”

Adviser Hamish Patel, who is also chairman of the Financial Advice NZ mortgage member advisory committee, said that the Credit Contracts and Consumer Finance Act can complicate matters and that often advisers face time constraints, such as a client needing to refix within two weeks.

'Mortgages advisers usually operate in small businesses. “We're in competition with each other. The free market drives us,” Patel said, noting that a client can walk out of a deal at any point before settlement, which means the adviser gets paid nothing, so it isn't in an adviser's interests to do anything but try to get the best interest rate.

Adviser Sarah Curtis said that advisers know what the rates in the market are and can look for banks to match any particular rate.

A number of advisers noted that other factors can be more important or more suitable to a particular client and that sometimes is non-interest policies of lenders that determine where a particular loan is best placed.

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