“The vast majority of Australian borrowers can’t be wrong. But in New Zealand some just don’t get it’

We have published a number of articles recently criticized the conflict of interest that mortgage intermediaries (“mortgage advisers”) have in their relationships with banks and customers. We have given FAMNZ the opportunity to respond. This is it.

Let’s move with the times and make New Zealand stronger

By Leigh Hodgetts*

Although New Zealand is a minnow in terms of the nations of the world, we are respected around the world for our maturity, stability and participation in major international forums. In many areas, including our wine and film industries, we are even exceeding our limits.

But in the world of banking, finance, lending and mortgages, we can and must do better. We need more mortgage competition and more financial literacy education so New Zealanders can enjoy the economic benefits of living in this great country.

When you’re in “the system,” as I was for many years, it’s easy to accept the status quo without question. But late last year I left the establishment to join a new, innovative and perhaps even slightly disruptive association called the Finance and Mortgage Advisers Association of New Zealand (FAMNZ).

I believed in their view that New Zealand’s mortgage system needed an injection of energy and change, and that financial and mortgage advisers offered so much more than many people realised.

Yet there was no specific representation for this sector, no clear direction and little public recognition of the enormous benefits that mortgage brokers bring to consumers.

Even more startling, as we saw in the Commerce Commission’s recent draft report on personal banking, even some government agencies lacked this knowledge.

Despite this, around 50% of New Zealanders use a financial and mortgage advisor for their mortgage, which tells us that our advisors do an excellent job even without someone advocating for them at the highest level.

Imagine what we can achieve with a dedicated peak advocacy body, which aims to raise industry standards, increase consumer awareness, help mortgage brokers do more business and create greater competition in the marketplace to stimulate.

The winners are the New Zealand public and the New Zealand economy.

But before we can achieve these goals, we must engage in better education about who financing and mortgage advisors are and what we do.

Advisors have indicated they are ready for a new chapter, but it is clear that some well-intentioned but ill-informed people are stuck in the past.

I don’t blame them for not understanding because they’re in the system and think that’s all there is to it.

This ill-informed commentary focused primarily on conflicts of interest, competition, and disclosure; Yet financial and mortgage advisors apply much stricter criteria than lenders. Let’s face it: a bank can’t offer you competition or act in the best interest of the borrower because it sells a product.

Financial and mortgage advisors are required under the FMCA to use the term “Financial Advisor.” They are not considered real estate agents in New Zealand, and therein lies a problem. It dilutes our role by confusing us with other types of advisors.

That’s why FAMNZ is on a journey to improve the public profile of our sector. This is what financial and mortgage advisors earn.

Mortgage advisors are registered in the Register of Financial Services Providers, which allows consumers to check whether an advisor is legitimate and licensed to provide advice.

They are also well trained and require professional development plans that ensure ongoing training in products, compliance, ethics, regulations, legal requirements and financial advice skills.

Mortgage advisors are required to follow a six-step counseling process and provide advice to retail clients to help them achieve their real estate and financial goals. They are obligated to act in the best interests of the borrower, and they do so.

A recent report from the Financial Markets Authority (FMA) notes that advisers often recommend that clients borrow less than the amount they are approved for in order to support affordable loan repayments, showing that advisers are looking after clients’ interests rather than of trying to maximize commissions.

Mortgage advisors are also more transparent than many others in the credit sector. During the counseling process, they must disclose how they are paid, what they get, which lenders they can recommend, and how they operate.

This information helps consumers decide in advance whether they want to engage with the advisor and continue the process.

All financial advisers must operate under a recognized provider of financial advice, be regulated by the FMA and must comply with the requirements of the code. The code imposes legal obligations on anyone providing regulated financial advice to private clients, requiring them to meet prescribed standards of ethics, conduct and client care.

Mortgage advisers can run small businesses, but they must all be affiliated with an aggregator group (such as Loan Market Group, Finsure or Kiwi Adviser Network) that checks their files, determines the policies to be followed, pays their commissions and generally acts as the intermediary between the advisor and the lenders.

The sector has made progress over the past four years in preparing for the licensing, which has now been running for over a year.

Can our sector do better? Of course, we should always strive to do better, which is one of the reasons FAMNZ was founded.

FMA is currently monitoring advisors and the aggregator groups and will release guidance in June to explain what they are seeing and what is working well.

Market share in New Zealand has increased due to organic growth, a point the naysayers need to acknowledge. Customers share positive stories and recommend financial and mortgage advisors to others.

We shouldn’t forget that finance and mortgage brokers in Australia originate more than 70% of mortgages, and research from Agile Market Intelligence found that 86% of Australian mortgage brokers trust their broker.

The research shows that this trust directly leads to long-term and repeat customers, with 83% of mortgage broker customers indicating they will continue to turn to a broker for help with their next mortgage application.

The vast majority of Australian borrowers can’t be wrong. But in New Zealand some just don’t get it. Maybe they don’t like progress or maybe they are so entrenched in the “system” that they have lost perspective.

We need a more competitive lending environment in our country, and financial and mortgage advisors are encouraging this. FAMNZ will drive this like no other because no other industry group invests exclusively in our sector.

Kiwibank’s entry into the market has meant that accredited advisers have been recommending their products and this has led to a growth in the amount of business introduced to lenders generally.

Other smaller banks are following suit, with Co-Operative Bank set to scale back their capabilities as lenders and focus on expanding their third-party mortgage broker channel for greater efficiency and better customer outcomes.

Let’s move with the times New Zealand. Let’s boost competition, help Kiwis thrive and boost the economy.

Financing and mortgage advisors are not the whole solution, but we are part of it. Because we provide first-class service, act in the best interests of our customers and grow our market share, consumers will be the winners.

It is FAMNZ’s goal to make this happen, and if we need to disrupt a few things along the way – including some outdated attitudes – we will.

*Leigh Hodgetts is the NZ Country Manager, Finance and Mortgage Advisers Association of New Zealand (FAMNZ). Leigh is a respected industry leader and has previously held senior roles at Astute Financial Management NZ, ANZ, BNZ, Kiwi Adviser Network, FANZ and FMA.