Proposals for the compulsory disclosure of mortgage commissions don’t go far enough, according to peer-to-peer mortgage lender Southern Cross Partners (SCP).
SCP CEO Luke Jackson says the discussion document from the Ministry of Business, Innovation and Employment, which proposes the disclosure of fees and commissions, is something that SCP has already insisted on in all of its documents and dealings with mortgage advisers. He also says that the proposal could go even further.
“A borrower visits a mortgage adviser in the expectation that they will receive impartial advice on what is best for them,” Jackson said. “But there is a reasonable argument that an advisers’ judgement could be clouded by the relationships they have, as well as incentives and perks. I also know of mortgage advisers who are fearful of the repercussions they face when they don’t give a bank a certain volume of business.
“The proposal from MBIE raises a number of questions including who will be responsible for disclosure, who will police disclosure and what incentives will be included in disclosure. The question that needs to be asked is always ‘is this in the best interests of the borrower?’”
Jackson says that aggregator groups could be in the best position to monitor disclosure, as they already provide various forms of governance for advisers to operate within. Lenders could also be required to tell borrowers in their contract the remuneration they are giving out to the adviser.
“Unfortunately at the moment most of these things run on a ‘wait for the complaint’ model,” Jackson explains. “But when the public doesn’t know that they have the basis for a complaint, that’s not going to happen. You don’t know what you don’t know.”
Jackson says lenders need to be telling the public if they are putting pressure on an adviser to give them business, but unfortunately, the practice is still very common across the industry. Policing disclosure is a difficult task, as the designated enforcer will need to be extremely effective and responsive to changes in incentive structures.
“I don’t think there is a risk that the public will perceive advisers as more expensive than some lenders if advisers are required to disclose commissions,” he says. “The public already knows they get paid a commission – it’s nothing good communication won’t solve.
“Ultimately I would hope that the industry can eventually operate with there being no outside pressure on advisers when they’re giving advice to their clients.”
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