While it has been reported from Australia that Westpac will lift its up-front commissions to an unspecified level from the current 0.6% and that it will cease to pay current 0.2% trail commissions, no final decisions have been made.
Asked for comment, Westpac said: “We have strong and long-standing relationships with mortgage advisers and we value the role they play in supporting customers with their home ownership aspirations.
“We’re in discussions with our adviser network about some commercial aspects of our relationship. We are currently considering a range of feedback and no final decisions have been made,” the bank said.
“We can’t comment further while the conversations are ongoing.”
Westpac said in May that mortgage advisers accounted for about 64% of its net new mortgages in the six months ended March and chief executive Catherine McGrath told GoodReturns/TMMonline that advisers “are a really important part of the market.”
Advisers have been gradually increasing their share of Westpac’s mortgage business – at March 31, advisers had originated 55.2% of the bank’s total mortgage book.
At NZ’s largest bank, ANZ Bank New Zealand, if the institutional business is excluded, advisers account for more than 80% of mortgage origination.
The Reserve Bank’s financial strength dashboard showed Westpac had lost market share in the year ended June because it accounted for 13.4% of net new lending on mortgages by registered banks, reducing its market share to 18.64% - its market share at March 31, 2024 had been 19.02%.
TMMonline understands that the aggregators Westpac has been negotiating with have been given legal letters warning them against discussing the negotiations publicly.
The Finance and Mortgage Advisers Association of NZ (FAMNZ) managing director Peter White acknowledged that there is precedent for scrapping trail commissions.
“We can’t interfere with Westpac’s commercial arrangements but the industry must be given fair notice of any change,” White said.
“Westpac needs t be very clear as to what is happening as there is too much speculation in the market place at the moment,” he said, adding that advisers have built up trail incomes over 10 years through supporting Westpac.
White added that past trail commissions need to be protected.
Trail commissions have been a contentious issue in the industry for decades with ANZ and ASB currently not paying trail, but Westpac, BNZ and
Kiwibank all paying it and a number of non-bank mortgage lenders, including Sovereign, Bluestone and Liberty Financial, also paying trail commissions.
In theory, trail commissions are aimed at encouraging brokers to keep providing service to their clients after the initial placement of a mortgage and are a measure designed to discourage churn.
Such commissions also tend to increase the value of a mortgage adviser’s business with sales prices of such businesses often reflecting a multiple of trail.
Currently, up-front commissions range between 0.5% and 0.85% while trail commissions typically range anywhere from 0.05% to 0.2%.
In the 2000s, all four of the major NZ banks were not paying advisers trail commissions while BNZ ceased dealing with advisers at all.
Then in 2014, Westpac broke ranks to reintroduce trail commissions, saying explicitly that it wanted to increase its share of adviser business and that it wanted to build sustainable relationships with advisers.
A Westpac official said at the time that the bank had been seen as “a fair-weather friend” by advisers and it had wanted to change that perception.
Although all four of NZ’s major banks are owned by Australia’s big four banks, trail commissions aren’t common in Australia – Australia’s Productivity Commission had recommended in 2018 that the industry eliminate trail commissions, arguing that they provided advisers with “perverse incentives” to keep clients locked into their loans, reducing competition.
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