Westpac to scrap trail commissions in NZ

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 2x 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 Thursday (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."

The spokesperson added: “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.”

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 of a percentage point upfront and 0.20 of a percentage point trail, to an average of 0.85 of a percentage point upfront only.

Indeed, Westpac NZ itself has previously removed trail in NZ, before 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,” he said.

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 continyes to invest in the experience for brokers and their clients.

[Related: Why was trail commission brought in?]