The major bank is currently holding discussions with aggregators about plans to scrap trail commissions for mortgage advisers in New Zealand.
Westpac New Zealand has been in talks with aggregators and broker groups across the Tasman this week about its pending plans to axe trail commissions for mortgage advisers.
Currently, the bank pays mortgage advisers in New Zealand 0.60 per cent upfront and 0.20 per cent trail commission.
However, the major bank has told broker groups it intends to lift upfront payments and remove trail payments altogether.
Clawbacks on upfronts remain in place, while trail – including trail yet to kick in on 2024 settlements (as trail typically commences after the first year in New Zealand) – will be wiped out.
According to those close to the matter, the bank held talks with aggregators earlier this week outlining that it intends to offer them a one-off payout for trail equal to a multiple of trail (believed to be 2 times book value).
While the impact of moving to an upfront would change how broker businesses are valued – and how brokers budget – Westpac NZ told The Adviser that the finer details are still being discussed.
A Westpac NZ spokesperson told The Adviser on Friday (3 October): “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.
“We can’t comment further while the conversations are ongoing.
“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.”
Noting the move, the Finance and Mortgage Advisers Association of New Zealand (FAMNZ) issued a call to the bank to ensure any plans are fair and reasonable.
FAMNZ managing director Peter White AM commented: “We can’t interfere in Westpac's commercial arrangements but the industry must be given fair notice of any change,” he said.
“Westpac needs to be very clear as to what is happening as there is too much speculation in the market place at the moment.
“Advisers are rightly concerned about their future as many have trail incomes built up over 10 years of supporting Westpac.”
White also called for past trail commissions to be protected.
“We believe that if this change is inevitable, Westpac must grandfather the past until those loans expire.
“They must draw a fair and reasonable line in the sand if things are to change.”
He also said that while there is current discussions with aggregators, he is disappointed the bank didn’t consult the industry properly before making any proposed changes.
“We will be monitoring this very closely and advocating for the rights and businesses of advisers.
“Not only should any changes that are made be in the interests of Westpac’s customers, but the bank also must ensure advisers, who are an important channel for them, are supported.”
NZ lenders increasingly moving away from trail
Many New Zealand banks have already made the decision to remove trail commissions on home loans.
In 2006, several banks changed adviser remuneration from 0.65 per cent upfront and 0.20 per cent trail, to an average of 0.85 per cent upfront only.
Indeed, Westpac NZ itself has previously removed trail in NZ, before reintroducing it in 2014 (as did several other banks). Banks that do not pay trail commission to mortgage advisers in New Zealand include ANZ, ASB, and TSB, which all pay an upfront commission of 0.85 per cent.
It is expected that Westpac NZ will offer mortgage advisers a similar number, if not higher.
What happens in Australia?
Australian aggregation groups that have a presence in New Zealand – including Finsure, Loan Market, Astute, and Liberty – are watching closely.
Loan Market CEO David McQueen, whose group has a strong New Zealand presence, said the move was disappointing, but stressed the difference between the Kiwi and Australian markets.
For example, around 90 per cent of the mortgage market in New Zealand is for fixed-rate loans (whereas less than 4 per cent of home loans are currently fixed in Australia), and only around half of the lenders operating through mortgage advisers do not currently pay trail commission.
Speaking to The Adviser, McQueen said: “We’re obviously not happy. We believe trail in New Zealand should not be stopped, because trail drives better customer outcomes. Removing it risks making broker behaviour more transactional because they are not being remunerated for ongoing service.”
He added that he did not believe the move by Westpac NZ would be emulated by Westpac Australia.
“In New Zealand, with its fixed-rate dominated market – around 90 per cent of loans – banks may see the economics differently, and some lenders have already moved away from trail. There’s already a precedent,” he said.
“But, in Australia, it’s a very different model. Every major lender pays trail, the Combined Industry Forum and government have endorsed it, and the industry recognises the value it delivers.
“We would be very surprised and disappointed if any bank were to move away from it here. We don’t see that changing.”
The Adviser reached out to Westpac Australia to ask whether it had intentions to remove trail for Australian brokers, but was told the matter was for Westpac NZ.
The bank noted the importance of the channel for Australians who begin their Westpac home loan journey with a broker, highlighting that it continues to invest in the experience for brokers and their clients.
[Related: Why was trail commission brought in?]
