Another blow to advisers over trail commissions

BNZ! where are BNZ? BNZ have to stop trail commission now without a doubt, it's going to happen, any advisers sending deals to BNZ to get future trail long term clearly have their head firmly in the sand.

With a much greater emphasis being placed now on competition in the banking sector “retention incentives” like trail commission paid by banks to mortgage advisers are about to go the way of the dodo. The regulators stance is that advisers are expected to ensure that a client’s lender is the best option for them for the duration of their home loan. This means a change in mindset for some advisers who have been content on keeping their clients at certain banks so that they receive a trail payment. In Australia APRA has previously reviewed the existing barriers to customers seeking to switch lenders for a better deal on their home loan. It found that adviser clawbacks and trail payments by banks were a key reason for why an adviser could potentially discourage their client from switching. Here in New Zealand the Commerce Commission’s directive to banks regarding adviser clawbacks stated that the existing lengthy clawback periods are an anti-competitive practice that deters borrowers from refinancing, especially when customers switch lenders. Most main banks have now followed that directive. Likewise, we have now had Westpac & ASB (for the Go Home Loan product) decide to stop paying trail on new loans. It’s obvious that both BNZ & Kiwibank will also follow. If trail payments by banks have been deemed to be a potential barrier to customers seeking a better deal on their home loan, then no lender in New Zealand will be grandfathering trail. It doesnt matter what agreements the head groups think they currently have with BNZ & Kiwibank & ASB (for the Go Home Loan product) these lenders now have the perfect excuse to wriggle out of honouring what they signed.

Of course, there's different ways to spin it; blaming Trail commission on poor client outcomes due to sketchy Adviser tactics is the preferred bank response, with that motivation exists. Anything could be further from reality: https://www.linkedin.com/posts/rsfa_a-balanced-conversation-for-the-nz-mortgage-activity-7396997813458616320-ZFyg?utm_source=share&utm_medium=member_android&rcm=ACoAAAfZRrkBpfeh6pwn4DW-dTXk0sHT7vzVJIY

@ RSFA The reality is that the bad operators have again ended up spoiling things for the good ones. How many times have we seen this industry shooting itself in the foot? Too many because the head groups do nothing to police the bad advisers. The BDM at my group even once recommended that I only place business with banks that pay trail. Go figure. There’s clearly been advisers out there that have been happy keeping their clients at certain banks so that they then get a trail payment. That’s not called putting your customer first and certainly not fitting the customers to the best bank product, good intention advisers will have a fast spread of clients at different banks because that where the clients fit bests, any adviser with a mainly trail book at one bank I automatically think they have put customers there just to get trail .

@ RSFA - Trail commission was never introduced by banks to encourage ongoing client service, care, and support. Trail commission was introduced as a retention incentive. Plain and simple. These banks offered advisers a reduced upfront commission compared to others but dangled the carrot of an increased commission overtime the longer the adviser kept their client’s loan with the bank paying them a trail payment. Westpac have stopped paying trail to mortgage advisers on new loans, yet they are continuing to pay trail to customers who source a home loan directly from Westpac via Dosh. Dosh offers no advice to customers and are not providing ongoing client service, care, and support. Why then has Westpac decided to pay Dosh customers a trail payment? Well obviously they are being incentivised by the bank to remain with them as long-term home loan customers.