FMA to investigate mortgage advice sector

How over regulation has a negative effect on Consumers.
New regulation imposed by the FMA over the last 4 years created a licensing structure, (licensed Financial Advice Provider or FAP’s) basically no adviser can give financial advice without
a. having a FAP license or
b. operating under someone else’s FAP license.
Sounds simple? No not really.
Lenders in NZ will not deal with individual Mortgage advisers FAP’s directly and will only deal with “Dealer Groups “ ( essential middle men ) of which advisers are forced to belong to get access to loan produces , the dealer groups or ( now called Master FAPs) control what lenders and lending produces advisers have assess too and the lenders control what commissions are being paid via these groups /Master FAP’s.
These Master FAP” s/groups have a monopoly over what membership fees they charge advisers and basically if these fees are not paid the adviser cannot access the lenders, the also impose “mandatory training “cost on members so the Master FAP can comply with its license.
Smaller FAP’s have to not only comply with their own license requirements for training and regulation costs but also for the Master FAP license as well, essentially being regulated twice.
This gives dealers groups absolute control over membership fees, regulation training costs, their own internal lending and insurance product deals they negotiate behind closed doors and clip the ticket on all of it!
Monopoly? Maybe
Banks of course love this as its easier for them to pay all commissions to one dealer group and have them sort any claw backs for them. (yes, that’s right commission can be clawed back up to 27 months after loan settles).
This is over regulation in its craziest form and will be the cause of many advisers leaving the industry all together so the consumers access to independent financial advice diminishes and more are force to go direct to one bank and get no independent advice, if anything the ( in the respect of fair outcomes ,and championing for freedom of choice for consumers ) ComCom and the FMA should be investigating Dealer groups /Master FAPS instead of promoting fund raising for its favorite one bank ,epically the groups that are owned by real estate agents which in my opinion are not arm’s length and share client data platforms.
Advisers confirm to customers how they get paid and from whom they get paid as the majority of their income is commission based with commissions varying from lender to lender.
The majority of mortgage advisers operate with integrity and are focused on the needs of their customers first as individual customer circumstances will be more suited to one bank than another, trying to standardize applications didn’t work in Australia and it won’t work here.
Banks are very competitive as every aspect of banking and borrowing is negotiable.

The key issue, she says, is around transparency in mortgage advice.
"The Minister and the Commerce Commission have clearly expressed concerns about practices in this space," she said.

Hmmm, As Advisers we have to disclose everything so I am really not sure what these 'concerns' are. The facts are over 60% (and growing) of Kiwis engage with an Adviser for their loans and the number of complaints around the Advice process you can count on one hand. Perhaps the powers that be could elaborate on what exactly they mean?

FMA chief executive Samantha Barrass told the FSC conference yesterday the regulator will be looking to do what it can in the months ahead to respond to the Commerce Commission’s banking report. The key issue, she says, is around transparency in mortgage advice. "The Minister and the Commerce Commission have clearly expressed concerns about practices in this space," she said.

A reminder seems to be necessary to the FMA about how the mortgage advice industry is currently structured. Because all mortgage advisers (with or without their own FAP licence) are currently forced to belong to a dealer group (aggregator) these “primary FAPs” as the banks/lenders call them now control advisers access to which banks/lenders we can and cannot approach for our customers. These restrictions are in place for commercial reasons to benefit the various dealer groups whose model for many experienced mortgage advisers now with their own FAP licence no longer has the value it once did prior to the industry been licenced. Many mortgage adviser businesses with their own FAP licence would much prefer to have direct relationships with the various banks and lenders that we feel would benefit our customers.

When the FMA is talking about a lack of “transparency” around which lenders mortgage advisers don’t deal with then the FMA need to remember that they themselves allowed the dealer groups to retain their current monopoly over which banks/lenders mortgage advisers can approach for their customers. The FMA when challenged on this subject previously has said that it’s a “commercial decision” that banks/lenders have made to still require all mortgage advisers to belong to a dealer group. Well sorry that excuse doesn’t benefit consumers now clearly if the Commerce Commission’s own report is highlighting transparency issues around which lenders mortgage advisers do and don’t have on their panel.

The FMA cannot sit there now and say like the Commerce Commission are that they want advisers to not only say which lenders are on their panel but also which lenders they don't work with and not acknowledge that as the chief regulator of the financial services industry they are the reason why advisers are not able to access a greater number of lenders for their customers. The FMA have allowed the monopoly that the dealer groups hold over the mortgage advice sector to continue. This needs to end now to promote greater competition which will ultimately end up benefiting consumers.

The Commerce Commission with its comment around it wanting mortgage advisers specifically disclosing to customers which lenders we don’t have on our panel appears to think that to secure a good deal for a customer an adviser needs to be making a loan submission to every single lender in the country…..(sigh). The Commerce Commission clearly has no idea how the mortgage adviser industry functions nor the advice process that advisers are now required to go through when making a lender recommendation to their customer.

This coming from an organisation that previously mandated when the panel valuation service was introduced that banks would still be required to accept valuations from historic bank approved panel valuers i.e. the customer could go via either Corelogic or Valocity now for a valuation or just continue to source one from a valuer that the bank knew and trusted.

During the pandemic, the banks subsequently disregarded this ruling made by the Commerce Commission and now force all customers to source valuations exclusively from Corelogic or Valocity. And what has the Commerce Commission done about this? NOTHING……

This has now added both time and cost to the process of ordering a registered valuation for a lender. In some cases, customers are being forced into paying an “urgent fee” of $250 by Corelogic & Valocity which historically a registered valuer would never charge. A valuer either had the capacity to do the valuation or simply declined the job.

The panel valuation service as it stands today is about as good an example of a monopolistic trade practice as you can get in New Zealand. It has removed consumer choice and limited competition in an industry. The Commerce Commission cannot be taken seriously as an organisation charged with protecting consumers talking about “transparency” within the mortgage adviser industry when it doesn’t even enforce its own earlier rulings made for consumers.

Hang on a second. Let’s use NZHL as an example please Mr ComCom & FMA.

NZHL masquerade as “mortgage advisers” yet they cannot access the bulk of main bank lenders available in the market been owned by Kiwibank. NZHL is owned by Kiwi Group Capital Limited (KGC). KGC also owns Kiwibank Limited who are a home loan provider for NZHL.

As per NZHL’s current disclosure statement showing online.

“NZHL and our Franchises provide financial advice services through our advisers on the products of the following lenders”

“Home Loans – New Zealand Home Loan products (provided by Kiwibank or ASB), Resimac Home Loans (Prime & Specialist products) and Liberty Financial (Prime and Custom home loan products).”

So will ComCom and the FMA be expecting NZHL now to change their disclosure statement to reflect to customers all the various lenders they cannot deal with????

Excellent point you’ve raised valkyrie and well said JeffQV also.

ComCom and the FMA cannot say that they have “concerns” now about transparency around mortgage advice and advisers disclosing which lenders they do not have on their panel without talking about the elephant in the room which is New Zealand Home Loans (NZHL).

NZHL promote themselves to their customers as been mortgage advisers yet because of them been owned by Kiwibank they have extremely limited lender options available. You cannot call yourself a mortgage adviser and only have access to two main banks one of which owns you!

Well said Gentlemen (of course, I am referring to Valkyrie, Amused, and JeffQV, not the bungling bureaucrats in Wellington!).

However, we have been saying these things for a long time now, put submissions to the CommComm, Code Committee and the FMA, lobbied the government, the dealer groups and the banks. All to no avail. The banks have a clear agenda; Mortgage Advisers are simply seen now as data collectors and loan pre-qualifiers for the banks. It doesn't matter what advice we give the clients, the banks can and will over-ride it. Yet we take the responsibility (and the costs). And if insurance companies can deal with individual advisers, WHY CAN'T the banks? The dealer groups are simply clipping the ticket and further increasing our costs.

Regarding the commission - it is now abundantly clear that we are not allowed to seek a full commission clawback from our clients, so to that end we are making a loss, especially when you take into account the time and effort spend on a client over the whole 27 months.

To me, all these reports (and any action that MIGHT come out of them) are simply about rearranging the deckchairs on the Titanic!

I am going to endorse what most other advisers have been saying for the last 5 years: The latest set of regulations, the work of the FMA, and the CommComm have done NOTHING to improve the advice given to clients, nor has it made it any easier for us to do so. All it has done is give power to the FMA to prosecute the bad advisers, while making life more difficult (and expensive) for the good ones.


Better choice and advice for clients: Yeah, Right!