Does the mortgage sector need more transparency over commissions?

by Maya Breen16 Oct 2015
Following recent calls from the insurance sector for insurance brokers and advisers to be more transparent to clients about the commission and incentives they receive on products, a mortgage adviser has said this would be beneficial across the mortgage sector as well.

Professional Advisers Associations (PAA) board member and Loanmarket mortgage adviser Karen Tatterson told NZ Adviser, “First and foremost we’ve got to make sure that we’re doing the right thing by the client and secondly that the income we are receiving is because we are doing the right thing for the client.”

The requirements for disclosure are currently different for RFAs and AFAs and in their submissions to the Review of the Financial Advisers Act 2008 (FAA) the PAA has said they need to bring both categories under a single code.

“While it is appropriate to tailor the conduct requirements to different advice needs, we recommend this distinction should be made at a conduct standards level (within the Code) and not as a basis for categorising advisers into different types (AFAs, RFAs etc). In part this is because product type is only one aspect of the complexity of a client/advice situation. It is also because the AFA/RFA distinction causes consumer confusion,” their submission states. 

“I believe there’s quite a bit of confusion within the industry, that’s within the advisers of what they should and shouldn’t do around their disclosure and lot of them are taking the lead from the likes of the PAA and obviously their aggregators,” says Tatterson. 

“But I still think that there are a lot of people out there who aren’t doing it correctly and that’s probably because of a lack of understanding as opposed to anything else.

“I think what we need to have a better understanding from the code of what is required of us and it needs to be simpler.” 

Tatterson says it is equally important to disclose to the client if an incentive is on offer to the adviser as part of a product.

“We are obligated to disclose that information to the client - I think that’s really important and certainly under the code we are required to do the best thing by the client. 

“But there’s a very fine line we tread as an adviser in terms of making sure we are putting the client with the right lender or insurance company for the right purpose and that’s where transparency I think is really important.”

Clearer rules around disclosure to clients will benefit the client and the adviser and if it is simplified may result in an easing of the higher costs involved in compliance for the adviser as well.

Tatterson says the cost of compliance now is significant for advisers compared to five years ago when the costs to enter mortgage broking were minimal but when it comes to commission believes they will stay put. 

“The service we offer has historically always been free to the client and I don’t think the commission structure has been designed for any benefit other than to allow us to make a liveable income.”

She says making money is not the number one attraction for people entering the industry but because they have a genuine desire to help clients and their commission-based income is used to run their business and pay staff.

“I think commission is still the way to go, but I think there needs to be more understanding around what the commission is used for.”

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